Akre Capital Management is a quality-growth firm founded by Chuck Akre in 1989 in Middleburg, Virginia, famous for its "three-legged stool" framework — extraordinary business models, shareholder-minded management, and long reinvestment runways. It holds compounding machines like Mastercard and American Tower for years; its quarterly commentaries are plain-spoken and widely read.
This report says Akre Focus Fund's holdings have strong fundamentals but trade at decade-low valuations because the market is obsessed with AI stocks. The manager sees this disconnect as an opportunity and is staying put. Top five holdings—Mastercard, Visa, Constellation Software, Brookfield, and KKR—make up over 60% of assets. The manager explains each, e.g., Mastercard and Visa's tokenization tech now covers over half of global e-commerce, cutting fraud. New small positions in TransDigm and Rollins were added, as the manager believes quality non-AI companies are overlooked.
One-sentence summary: The author believes portfolio fundamentals are strong but valuations are at decade lows; market sentiment and AI narratives have caused a valuation re-rating, yet the conviction is that the disconnect between fundamentals and valuations will create future opportunities. [Cautiously Optimistic]
The fund posted a net return of -0.84% for the quarter, trailing the S&P 500's +2.30% by approximately 3.1 percentage points. Performance was strong in July (+7.97%) and August (+7.26%), but a sharp decline of -14.38% in September wiped out all gains from the prior two months. For the trailing twelve months ended September 30, 2026, the return was -21.80%, significantly below the S&P 500's +15.74%. The report argues that the fund's holdings are high-quality businesses with strong fundamentals, yet their valuations are at decade lows. This disconnect between fundamentals and valuations creates opportunities for the future.
Performance Comparison: Current period return -0.84% vs. benchmark +2.30%; trailing one-year -21.80% vs. +15.74%. The author attributes this to a disconnect between market sentiment and fundamentals, rather than a deterioration in business operations.
The author believes that the holdings' free cash flow, profitability, and balance sheets are significantly superior to the market, but their valuations are at historically extreme lows. As of September 30, key portfolio data is as follows:
The author states: "We believe the disconnect between fundamentals and valuations sets the stage for an exciting future that we look forward to sharing with our fellow shareholders." This means the author believes the disconnect between fundamentals and valuations sets the stage for an exciting future and looks forward to sharing it with fellow shareholders.
The author elaborates on the bullish thesis for each of the top five holdings (which collectively represent over 60% of assets), emphasizing their moats and growth drivers.
Mastercard and Visa (Hold/Observe): These two companies continue to direct more "traffic" and create value at the most critical intersections of global commerce. AI-driven agent commerce brings new risks and opportunities that require coordination by these dominant networks (quantum computing will eventually do the same). Tokenization technology now covers over 50% of global e-commerce transactions, reducing fraud rates by 39% and increasing authorization rates by 5%. Yet, both companies are only beginning to monetize this technology a decade after its launch.
Constellation Software and Topicus (Hold/Observe): In the first eight months of 2026, capital deployment by the Constellation family (including the three public companies Constellation, Topicus, and Lumine) is approaching the full-year record set in 2023. The AI disruption narrative has created more acquisition opportunities in vertical market software. Constellation's recent organic growth (Q2 2026: +3%, Q1: +6%) is higher than its ten-year historical average of +2%, countering the AI disruption narrative. The author was surprised by Topicus CEO Robin van Poelje's departure as CEO but does not believe it will affect the company's growth prospects—he retains the role of Chairman, and Topicus is further decentralizing its operations.
Brookfield and KKR (Hold/Observe): The author quotes KKR Co-CEO Scott Nuttall: "We've been public for 17 years... I don't recall a period in which the external perception has been so disconnected from the operating fundamentals and how we feel inside the firm." This means that in KKR's 17 years as a public company, it has never seen such a disconnect between external perception and internal operating fundamentals. The author refutes market concerns point by point: ① Is private credit a problem asset? — Both KKR and Brookfield expect 2026 to be a record year for private credit fundraising. ② Will AI disrupt their software investments? — Software accounts for only 6% of KKR's assets under management (AUM), and organic revenue growth over the past twelve months was in the high single digits. ③ Will private equity struggle to return capital to clients due to poor past investments? — 2026 is expected to be the largest monetization year in KKR's history.
| Position | Action | Key Data/Rationale |
|---|---|---|
| Mastercard | Hold/Observe | Tokenization covers 50%+ of e-commerce transactions; fraud rate down 39%, authorization rate up 5% |
| Visa | Hold/Observe | Same as above |
| Constellation Software | Hold/Observe | 2026 capital deployment approaching 2023 record; organic growth +3%/+6% above ten-year average of +2% |
| Topicus | Hold/Observe | CEO steps down but remains Chairman; operations further decentralized |
| Brookfield | Hold/Observe | Expects record private credit fundraising in 2026; software AUM is very small |
| KKR | Hold/Observe | Expects 2026 to be largest monetization year ever; software accounts for only 6% of AUM |
The author is confident in the long-term compounding growth of KKR and Brookfield, believing their free cash flow per share can sustain a mid-teens annualized growth rate. Three reasons support this: First, their competitive advantages from scale, unique operational capabilities, and differentiated culture and compensation systems allow them to continuously capture a larger share of private market asset allocations from traditional LPs like sovereign wealth funds and pension funds. Second, the $14 trillion defined contribution market is opening up to private markets, and both companies are well-positioned to win the trust of individual investors. Brookfield recently outlined a plan at its investor day for 14% annualized growth in fee-bearing AUM over the next five years. Third, beyond AUM growth, both companies reinvest the free cash flow generated by their asset management businesses into other businesses on their own balance sheets (similar to the Berkshire Hathaway model). The author expects these investments to also generate significant compounding returns.
Moody's performed exceptionally well in the first half of the year, benefiting from record bond issuance to finance AI computing infrastructure. Moody's ratings are the standard reference for credit investors, providing efficient financing channels for borrowers. Moody's Analytics embeds critical data and intelligence into client workflows and is actively adopting, integrating, and productizing AI to serve corporate clients. The author also acknowledges that not all holdings have performed well—under "temporary clouds," they have established or added to some positions. Specific headwinds include: LVMH is weighed down by sluggish luxury goods growth; Copart recently lost a large insurance client, and its reinvestment decisions are under close scrutiny; Fair Isaac (FICO) has become a political scapegoat due to housing affordability issues; CoStar's domestic residential strategy and reinvestment remain in question. The author states they will continuously test their conviction in all holdings and adjust accordingly.
The Akre Focus ETF experienced unusually poor and volatile price performance this quarter, while market indices repeatedly hit new highs. The author points out that these index highs are misleading: the S&P 500's entire positive return for the third quarter was contributed by just four stocks; the remaining 498 stocks (the index actually contains 502) collectively had a negative return. The reason for the poor performance over the past 15 months is clear: the rise of AI has transformed a group of "uncontroversial" businesses into a seemingly "controversial" portfolio, causing a significant downward valuation shift that offset the companies' continued strong operational performance. The author's reason for staying the course is equally clear: they believe valuations are too low, and as the AI narrative broadens and evolves, the portfolio can not only benefit from continued strong operational performance but may also experience a valuation recovery—meaning "two tailwinds" could eventually arrive. This explains their patience and persistence.
The market's widespread neglect of high-quality companies outside the AI trade provides opportunities to add new positions to the portfolio. The author has established small positions in TransDigm and Rollins, which may be increased over time. They also hope to add to other long-admired businesses if valuations permit.
Top Five Contributors: Constellation Software, Mastercard, Salesforce, CCC Intelligent Solutions, ServiceNow. The author believes the "SaaSpocalypse" narrative surrounding software eased somewhat this quarter, benefiting most software holdings, and believes there is still significant upside.
Bottom Five Detractors: Fair Isaac, Brookfield Corp., LVMH, Topicus.com, CoStar Group. A common factor may be the significant rise in interest rates this quarter, which pressured credit-financed and real estate-related holdings.
Cash Position: As of September 30, cash represented 2.8% of net assets, compared to 1.7% on June 30.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Mastercard | Hold & Observe | Tokenization technology monetization has begun, and AI agent commerce brings new opportunities | Tokenization covers 50%+ of e-commerce transactions, fraud rate down 39%, authorization rate up 5% |
| Visa | Hold & Observe | Same as above; traffic at key global commerce intersections creates value | Same as above |
| Constellation Software | Hold & Observe | Capital deployment near record levels, organic growth above the ten-year average; the AI disruption narrative instead creates acquisition opportunities | 2026 capital deployment close to 2023 record; organic growth +3%/+6% above the ten-year average of +2% |
| Topicus | Hold & Observe | CEO steps down but remains Chairman; operational decentralization does not affect growth outlook | CEO steps down but remains Chairman |
| Brookfield | Hold & Observe | Private credit fundraising hits a record; multiple growth engines support mid-teens annualized growth | Private credit fundraising expected to set a record in 2026; fee-bearing AUM annualized growth of 14% over the next five years |
| KKR | Hold & Observe | 2026 expected to be the largest monetization year in history; external perception is disconnected from internal fundamentals | 2026 expected to be the largest monetization year in history; software accounts for only 6% of AUM |
| TransDigm | New Position | The market overlooks high-quality companies outside the AI trade; small position established | Small position, may grow over time |
| Rollins | New Position | Same as above | Same as above |
| Moody's | Hold & Observe | Benefiting from the wave of bond issuance for AI infrastructure; rating and data analytics businesses drive dual growth | Excellent first-half performance |
| Fair Isaac (FICO) | Hold & Observe | Becomes a political scapegoat due to housing affordability issues; short-term headwinds | One of the top five detractors this quarter |
| LVMH | Hold & Observe | Dragged down by sluggish luxury growth | One of the top five detractors this quarter |
| Copart | Hold & Observe | Lost a large insurance client; reinvestment decisions under scrutiny | Short-term headwinds |
| CoStar Group | Hold & Observe | Questions remain over domestic residential strategy and reinvestment | One of the top five detractors this quarter |