Podcast Summary: Animal Spirits – Talk Your Book: The Anti-AI Portfolio

Date: December 15, 2025
Hosts: Michael Batnick (A), Ben Carlson (C)
Guest: John Neff (D), Portfolio Manager & CIO, Akre Capital Management
Main Theme: How an anti–"Mag 7" concentrated, long-hold fund navigates market momentum, the AI narrative, and sector concentration while maintaining discipline and performance.

Episode Overview

In this episode, Michael and Ben talk to John Neff of Akre Capital Management, a boutique asset manager renowned for its highly concentrated, long-term, and research-driven investing philosophy—in direct contrast to the AI and Mag 7–obsessed market. The discussion covers Akre’s investment process, the challenges posed by today’s market structure, the AI narrative’s impact on stock valuations, and the rationale behind their significant allocation to financials and core holdings, including MasterCard, Constellation Software, KKR, and Brookfield.

Key Discussion Points & Insights

1. The Challenge of Beating the S&P 500 Today

• Akre’s Focus Fund holds ~16 names, has incredibly low turnover (4–10%), and has historically kept pace with the S&P 500 despite no exposure to the Magnificent 7 (Apple, Nvidia, Microsoft, etc).
• John Neff states:

  “[T]he index has become itself a very concentrated momentum bet and that's worked in the favor of the index over the last five to 10 years to an extent that I think an active manager that is trying to sort of manage performance ... [finds] very difficult.” (03:28–04:32)

• Both hosts and Neff agree that the current era may be the most difficult ever for active managers to outperform the benchmark.

2. Conversion to ETF Structure and Tax Efficiency

• Akre Focus Fund converted from a mutual fund to an ETF for tax efficiency, especially valuable given its long holding periods and substantial embedded gains.
• Neff explains:

  “As an ETF, we can manage what is already a very tax efficient strategy even more tax efficiently.” (05:14–07:09)

3. The "Three-Legged Stool" Investment Philosophy

• Akre’s criteria for investments involves:
  1. Quality of the business (durable competitive advantage)
  2. Quality of people/management (alignment, culture)
  3. Reinvestment ability (how management redeploys free cash flow)
• Neff on stock holding discipline:

  “As long as the competitive advantage remains intact, the people are behaving well, the reinvestment opportunity and acumen continue to be in place. We're going to hold the business, and that's what we spend most of our time monitoring.” (08:05–12:08)

4. Countering the AI Panic & "Is AI Eating Software?"

• The portfolio’s software names (e.g., Constellation Software) have been hurt by the narrative that AI presents existential risk.
• Neff is skeptical of the idea that AI will quickly disrupt established software businesses:

  “People tend to be awfully myopic about what the opportunity is and tend to be awfully myopic about … what's going to sustain that leadership. … The value of proprietary data, customer intimacy and ecosystem dominance become even more valuable, we would argue, in an AI world.” (14:47–18:05)

• He adds that LLMs and code generation won’t make enterprise software plug-and-play:

  “We don't believe, number one, you can just press a button and software becomes a DIY proposition.” (17:26–18:05)

5. Overreactions in Market Narratives

• Neff draws parallels to the dot-com bubble’s overbuilt telecom infrastructure and questions current capital spending by AI hyperscalers:

  “No one's calling that debt right now. … Is there an analogy there to some of the spending here? From the standpoint of the viability of an economic return, these are huge numbers. … that's just a question, not an answer.” (21:47–23:28)

6. The Fund’s Major Positions: Financials, Private Equity, and Networks

• Over 50% of the portfolio is in “financials,” but Neff stresses they avoid commodity lenders:
  • KKR and Brookfield: “closest thing to a financial” (24:24–36:28)
  • MasterCard and Visa: payment networks, no credit risk exposure
  • Moody’s: credit rater, not lender
• On the rise of private equity for high-net-worth:

  “That Wealth Channel … represents ... essentially a doubling of the AUM that the alt space currently has. So there's a big opportunity there.” (25:24–27:24)

• Differentiating KKR and Brookfield:

  "...there's no adverse selection of deals offered to the retail channel. They are peri passu with all the institutional investors..." (25:24–27:24)

7. Opportunistic Approach to Market Corrections

• On recent sharp drops (e.g., KKR losing 1/3 of value), Neff:

  “We have buy targets on everything we own. We have sell targets on nothing that we own.” (29:41–30:06)

  • Opportunistic buying when narratives overshoot.

8. Moody’s, Private Credit, and Quality Control

• When asked about risks in the private credit market—especially concern that “rubber stamp” agencies overrate assets:

  “One of the things that was interesting and we talked to KKR about this ... less than 1% ... of the bonds held in their insurance company are rated outside of Moody’s S and P or Fitch. ... Very important question though, something we've ... definitely trying to pay attention to.” (32:38–34:38)

Notable Quotes & Memorable Moments

• On Investment Conviction
  • “If you are going to pay an active manager, you want to pay a manager with conviction. And I've never seen a portfolio like this ... My favorite quote that John said … was we have buy targets, we have no sell targets.” (02:10–02:21, C)
• On Surviving AI Fears
  • “The question now … is AI eating software? And so that's become kind of the question.” (13:19–14:43, D)
  • “MasterCard is been using and pioneering AI back ... to the 90s, back when it was called machine learning.” (18:34–21:27, D)
• On Market Crises Past and Present
  • “People thought AOL was the Internet … but it never was. ... In a transformative boom, people are in a rush to anoint the leaders.” (14:47–15:20, D)
• On Financials Exposure
  • “We own financials that are called financials by ... classification ... But you know, really we don't own any. We don't own any banks. We don't own any lending institutions ... Most of what they do is private equity. ... We lose no sleep over that financials allocation.” (34:57–36:28, D)

Key Timestamps

• 03:04 – S&P 500 as toughest benchmark
• 05:14 – Fund’s conversion to ETF & tax efficiency
• 08:05 – Three-legged stool for stock selection
• 12:08 – Difficulty of holding vs. buying/selling
• 13:19 – AI narrative impact on portfolio
• 17:26 – Why AI disruption is misunderstood
• 21:47 – Overreaction parallels: AI vs. dot-com bubble
• 25:24 – Private equity, wealth channel, KKR/Brookfield
• 29:41 – Opportunistic buying; approach to sharp drops
• 32:38 – Moody’s, private credit, ratings concerns
• 34:57 – Sector concentration and “financials”

Conclusion

This episode offers a rare perspective from a concentrated fund manager who thrives on deep company knowledge, long holding periods, and skepticism toward current AI market narratives. Despite no “Mag 7” exposure, Akre’s disciplined approach has resulted in benchmark-beating performance, made possible (in their view) by rigorous research, patience, and focus on culture, reinvestment, and competitive advantage. Their stance: Overreactions—especially around AI—create opportunities, not existential risk. The discussion is a thoughtful rebuke of index momentum and short-term thinking, making a strong case for “anti-AI” portfolios in a world obsessed with technological revolution.

For more on Akre Capital and their approach, visit akrecapital.com.