A Slow Start for Akre Focus Fund

Akre Focus (symbol AKREX) just celebrated its first birthday, but its shareholders may not be in a partying mood. The fund, a member of the Kiplinger 25, returned 8.0% over the past year through September 15, five percentage points less than the average gain of funds that focus on fast-growing midsize companies.

Akre launched his own fund after splitting off from FBR, for which he compiled an outstanding 13-year record running FBR Focus. He says his new fund lagged over the past year because of his methodical approach to putting cash to work. He’s now 80% invested and is even with his bogey in 2010.

Like many other veteran stock pickers, Akre is paying more attention to economics these days. He mostly doesn’t like what he sees. More than one in six Americans either has no job or is not working enough hours to make ends meet, he says. Consumer credit is contracting, higher taxes are looming, and workers are struggling to repay debts and save enough money for retirement. “This decade cannot possibly look like the last decade,” he says. “People will continue to shop, but they will be stingier with every dollar.”

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Given this backdrop, Akre loves off-price retailers and has built sizable positions in three: Dollar Tree (DLTR), Ross Stores (ROST) and TJX Cos. (TJX), which operates discount chains such as T.J. Maxx and Marshalls. He says that all three companies have produced fine results -- generating high returns on equity (a measure of profitability) and healthy cash flows -- over the past decade, during which consumers, well, consumed with abandon. Today’s more constrained shoppers will be drawn to stores that offer discounted merchandise, he says.

Akre is also scrutinizing the financial sector. “Historically, when we have bought high-quality financial institutions cheaply, it has been a successful strategy,” he says. For instance, he’s picked up shares in TD Ameritrade (AMTD) and optionsXpress (OXPS), two electronic-brokerage businesses that generate strong cash flows. If interest rates rise, both will benefit by collecting higher earnings on their cash balances, he says.

Akre, who worked as a broker in the 1970s before becoming a professional money manager in 1986, has lived through a few economic and market cycles. Not surprisingly, he’s worried about government finances, interest rates and inflation down the road. “Long term, this country faces a fiscal crisis,” he says. “In my adult lifetime, we have continued to kick the can down the road every time. Congress has refused to make the hard choices.”

Formerly an ardent member of the bottom-up school of picking stocks -- that is, someone who focuses on companies one at a time -- Akre sounds as though he’s increasingly keeping his eyes on the big picture.