The Bretton Fund's third quarter of 2025 saw notable shifts in its investment portfolio and performance, as detailed in its recent shareholder letter. A major contributor to the fund's gains was Alphabet, whose shares surged by 3.1% following a favorable antitrust ruling for Google. This decision largely preserved Google's core search business from severe penalties, despite earlier concerns. UnitedHealth Group also experienced a rebound, adding 0.9% to the fund, leading to an increased position. Strong retail results boosted AutoZone and TJX, contributing 1.0% and 0.8% respectively. However, not all investments fared positively; Progressive, S&P Global, Moody's, and Visa were among the detractors. A significant strategic move was the fund's exit from its long-held position in Union Pacific, driven by concerns over a potential acquisition's dilutive impact and the complexities of regulatory approval.
The quarter's primary highlight was the resolution of the antitrust case against Alphabet's Google. A federal judge's ruling, which opted for limited data sharing rather than drastic business model changes, reassured investors. This decision averted severe sanctions, such as the divestiture of Chrome or Android, and consequently, Alphabet's stock experienced a significant uplift, contributing 3.1% to the fund's overall performance. This outcome underscored the resilience of Google's market position and its continued value as a core holding within the fund.
UnitedHealth, after a challenging start to the year, demonstrated a modest recovery, adding 0.9% to the fund. This upturn was buoyed by optimistic statements from the company's new CEO and a notable investment from Berkshire Hathaway. Recognizing the renewed positive sentiment and underlying value, the Bretton Fund strategically increased its holdings in UnitedHealth, anticipating further growth and stability in the healthcare sector. Additionally, AutoZone and TJX delivered strong retail results, reflecting consumer spending trends and effective business strategies, each contributing positively to the fund's quarterly returns.
Conversely, the quarter presented some challenges. Progressive's performance dipped, detracting 0.5% from the fund's returns, as market expectations of lower interest rates signaled reduced investment income for the insurer. Similarly, ratings agencies S&P Global and Moody's saw slight declines, taking off 0.3% and 0.2% respectively, while Visa also experienced a minor setback, reducing its contribution by 0.2%. These movements reflect the dynamic nature of market conditions and the varied impacts on different sectors.
A notable strategic decision involved the divestiture of Union Pacific. After nearly 15 years, the fund exited its position, having achieved a 13% annualized internal rate of return. While Union Pacific's fundamentals, including its strong pricing power, efficiency gains, and ability to shift freight from trucking, remained solid, the impending acquisition of Norfolk Southern raised concerns. The fund viewed the acquisition's price as potentially dilutive to shareholder value and anticipated a prolonged and distracting regulatory approval process. This decision to exit underscores the fund's commitment to optimizing its portfolio for both value and operational focus, ensuring that management's attention remains on core business strengths.
In summary, the third quarter of 2025 was marked by strategic gains from technology and healthcare sectors, particularly driven by Alphabet's favorable legal outcome and UnitedHealth's recovery. While retail stocks also provided positive contributions, the fund navigated some headwinds from financial services and insurance. The disciplined decision to divest from Union Pacific, despite its historical performance, highlights a proactive approach to portfolio management, prioritizing long-term value and mitigating risks associated with complex acquisitions. The fund continues to adjust its holdings to align with evolving market dynamics and fundamental assessments of its investments.