In the third quarter of 2025, the Bonhoeffer Fund made significant adjustments to its investment strategy, moving away from companies with sluggish growth trajectories. The fund actively sought out and acquired resilient, rapidly expanding businesses positioned in sectors that were temporarily undervalued. This strategic pivot reflects a commitment to identifying and capitalizing on opportunities with long-term potential, even within fluctuating market conditions. The Bonhoeffer Fund's new acquisitions are aligned with several key growth themes, including market consolidation, distressed asset acquisition, insurance operations, financial compounding, distribution networks, infrastructure investments, and housing construction. This focused approach is designed to enhance the portfolio's overall durability and growth prospects.
The portfolio's current composition shows approximately 35% exposure to cyclical end markets. To mitigate potential risks associated with these sectors, the fund is actively pursuing further diversification. This involves continuous identification and analysis of investment opportunities in areas such as banking, insurance, natural resource royalties, specialized distributors, logistics providers, housing, and specialty finance. The goal is to build a portfolio of companies that demonstrate durability, characterized by increasing recurring revenues, high free cash flow conversion, and consistent, growing returns on equity (RoE). This rigorous selection process ensures that new investments contribute to both the fund's growth objectives and its risk management strategy. A notable example of a successful long-term holding is Fairfax Financial, an insurance company that has consistently delivered strong performance.
The Bonhoeffer Fund recorded a net gain of 1.3% in the third quarter of 2025. This performance is set against the backdrop of broader market indices, with the MSCI World ex-US gaining 6.7%, the S&P 500 up by 8.1%, and the DFA International Small Cap Value Fund achieving a 10.7% return during the same period. The fund’s securities currently boast a weighted average earnings/free cash flow yield of 12.8% and an average EV/EBITDA of 2.9, coupled with 16% growth. This reflects the fund's successful strategy of identifying deep value opportunities that offer substantial growth potential. Looking ahead, the fund's commitment to strategic portfolio transformation, diversification, and a focus on durable, high-growth businesses in undervalued sectors positions it for continued success. The careful selection of companies with robust financial characteristics and alignment with long-term economic trends underscores a proactive approach to generating superior returns for investors.