Bretton Capital Management, an investment management company, released “Bretton Fund” fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. The market is experiencing a period of high returns, with two consecutive years of around 25% returns and 15 years of mid-teens returns, prompting investors to be cautious. The average stock market return is around 9-10% per year, historically, based on corporate earnings growth and dividends and buybacks. The 20 companies the fund owns are well-positioned and expected to perform well. Against this backdrop, in the fourth quarter, the fund returned -0.98% compared to 2.41% return for the S&P 500. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
In its fourth quarter 2024 investor letter, Bretton Fund emphasized stocks such as Dream Finders Homes, Inc. (NYSE:DFH). Dream Finders Homes, Inc. (NYSE:DFH) is a US based home builder. The one-month return of Dream Finders Homes, Inc. (NYSE:DFH) was -10.34%, and its shares lost 32.50% of their value over the last 52 weeks. On February 18, 2025, Dream Finders Homes, Inc. (NYSE:DFH) stock closed at $22.02 per share with a market capitalization of $2.058 billion.
Bretton Fund stated the following regarding Dream Finders Homes, Inc. (NYSE:DFH) in its Q4 2024 investor letter:
“Thirty-year traditional mortgage rates were over 6% for all of 2024, the highest they have been since the 2008 hnancial crisis, a sharp change from 2021 when they were below 3% for part of the year. Existing house sales hit their lowest levels since 1995, and new housing starts were down 4% from 2023. Lean times for the real estate industry.
Our other builder, Dream Finders Homes, Inc. (NYSE:DFH), sails a bit closer to the wind than NVR. While also an “asset-light” model that uses purchase options to minimize the capital tied up in undeveloped land, DFH is more willing to experiment and grow by acquisition. In a decade it has gone from the 103rd largest builder in the US to the 12th largest. But a focus on growth— and growth markets such as the southeast—has also exposed the company to more swings. Return on equity has dropped and so did the stock, losing 35% to be the worst performer in our portfolio. Earnings per share increased an estimated 14%.
Looking forward, we should bear in mind that the primary competition for new houses is existing houses. Whether mortgage rates are high or low does not impact the competitive dynamic for new production; all transactions face the same pricing dynamics. What does impact the competitive dynamic is changes to an input faced by only one category. If the costs of building supplies and labor increase—for example, due to lumber tariffs or immigration restrictions—new houses will be relatively less competitive with existing houses. If regulatory barriers to production—zoning rules, permitting timelines, etc. —are reduced, new houses will be relatively more competitive. We are have decades into a world of steadily decreasing real costs of construction inputs and steadily increasing barriers to production. Both trends are under tremendous pressure today. We take some comfort that the US has dramatically underbuilt during this time and are millions of houses short of our needs, but this comfort is mixed with some trepidation that the comfortable rhythms of our builders might be in for some volatility.”
Aerial view of a residential subdivision under construction, highlighting the scale of the homebuilding business.
Dream Finders Homes, Inc. (NYSE:DFH) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 8 hedge fund portfolios held Dream Finders Homes, Inc. (NYSE:DFH) at the end of the third quarter which was 10 in the previous quarter. While we acknowledge the potential of Dream Finders Homes, Inc. (NYSE:DFH) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article we discussed Dream Finders Homes, Inc. (NYSE:DFH) and shared Wasatch Micro-Cap Growth-U.S. Strategy’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.