Hedge Fund Manager Charles Akre’s Top Stock Picks Include Mastercard

Chuck Akre has been managing money through one vehicle or another since 1989. For some time Akre operated the FBR Focus fund before relaunching as the Akre Focus fund in 2009. Oddly, the fund is based not in New York or Greenwich or Chicago but in Middleburg, Virginia- a town with a population of 632 in the 2000 Census.

Akre’s investment philosophy centers on finding companies with high returns on equity which should be able to sustain those high returns for the next several years. This means that the company in question has to have plenty of growth opportunities and managers must be able to reinvest capital generated from current operations into these opportunities without substantially affecting the return on equity. If Akre can find these kinds of companies, it is fairly open to paying moderate multiples on cash flow- Akre and his team prefer free cash flow metrics to earnings metrics- and would prefer these opportunities to those which have fewer growth opportunities but cheaper multiples.

When we look at his 13F filings over the last year, investments tend to be weighted towards services, financial, and technology stocks and this makes sense as companies in these sectors will generally have lower marginal costs to growth than, say, a manufacturer of consumer or industrial goods which might need twice as many plants and workers to generate twice as much revenue. Read on for our quick take on his five largest holdings by market value or see the full list of Akre’s stock picks.

Mastercard Inc (NYSE:MA). Akre increased its holdings of Mastercard to about 340,000 shares as of the end of the end of September. The credit card issuer was one of the two most popular services stocks in our database of 13F filings behind rival Visa (see the top ten services stocks). At an EV/EBITDA multiple of 13x and a forward P/E of 19, it’s difficult to call Mastercard a value stock; however, return on equity is above 30% and we could see the company benefitting from higher payment volume.