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Tweedy, Browne Fourth Quarter Fund Commentary
Posted by: Holly LaFon (IP Logged)
Date: January 21, 2013 02:00PM
Global equity markets climbed a wall of "macro worry" in 2012 and finished on a high note in spite of the last minute brinksmanship of U.S. politicians regarding the approaching fiscal cliff. While the economic recovery from the 2008 financial crisis has been less than robust, our portfolio companies continue to make excellent financial progress and for the most part, in our estimation, have grown their underlying intrinsic values. In 2012, that progress was well rewarded in the stock market. All four of the Tweedy, Browne Funds produced very good absolute returns for both the quarter and the year. On a relative basis, our two international funds, the Global Value Fund (Hedged to USD) and the Global Value Fund II (Unhedged) outperformed their respective benchmarks for the year, but underperformed their benchmarks for the quarter, while the reverse was the case for our two global funds, the Value Fund and the Worldwide High Dividend Yield Value Fund. Those two funds outperformed for the quarter but underperformed for the year.
While the vast majority of stocks in our fund portfolios had positive returns for the quarter, our best results were produced by a number of our media, beverage, insurance and industrial holdings. This included media companies such as the Daily Mail, Mediaset Espana (GETVF), Publigroupe, and Schibsted (SBSNY); beverage holdings such as Heineken (HEINY) and Coca Cola Femsa; insurance stocks such as CNP Assurances and Munich Re; and industrials such as Emerson Electric (EMR), Safran (SAFRY), Unifirst (UNF), Union Pacific (UNP), Akzo Nobel (AKZOF) and Siemens (SI). We also had very nice returns in Bank of New York Mellon (BK) and Baxter International (BAX).
In contrast, with the exception of Conoco (COP), and its spin-off, Phillips 66 (PSX), our oil & gas holdings lagged most other groups during the quarter. This was also largely the case for our tobacco holdings including Philip Morris (PM) and British American Tobacco which had produced some of our best results in 2011.
During the quarter, we continued to reduce our positions in tobacco and beverage holdings which were trading at or near our estimate of intrinsic value. We trimmed our positions in British American Tobacco, Arca, and Heineken. We also reduced our position in Krones, the German beverage equipment manufacturer, and sold our remaining shares in SK Kaken, Guoco Group, Mirai Industry Co. and Sinolink Worldwide, as they had reached fair value. We also sold our remaining shares in Katsuragawa Electric, Mondadori, Exelon, and IGM Financial (IGM), all of which had produced rather disappointing results.
We established new positions during the quarter in two industrial businesses, an information technology company and a Japanese pharmaceutical company. This included Halliburton, the Houston based global oil service company; Joy Global, the US-based mining equipment manufacturer; Cisco Systems (CSCO), the global leader in routing and switching technology; and Mitsubishi Tanabe, the Japanese pharmaceutical company. All four of these companies at purchase were trading at significant discounts from our conservative estimates of their intrinsic value, were financially strong and we believe have solid prospects for future growth. In addition to the above new buys, we added to our positions in Devon Energy (DVN), Royal Dutch (RSD.A), Scor, HSBC (HBC), and Tesco (TESO), among others.
In terms of current positioning, our Fund portfolios continue to be multi-cap in character although they have had a larger cap orientation for the last several years. Except for the Value Fund, European securities continue to comprise the largest segment of our portfolios by geography. This categorization is largely a function of where corporate headquarters are located, with most companies having a broad global footprint from an end market perspective. Industry concentrations include food, beverage and tobacco companies, media stocks, insurance companies, pharmaceuticals, and a growing industrial segment. We have also been increasing our commitments to the oil & gas industry and related companies with our recent investments in Halliburton (HAL) and Vallourec (VLOUF). In general, as we mentioned in our last quarterly report, over the last quarter and year, we have sold or reduced positions in a number of consumer oriented businesses, and established new positions in various industrial-based businesses where we were presented with pricing opportunities. Cash reserves have on average been increasing modestly in our Fund portfolios as equity markets have advanced.
As you know, just after the New Year was welcomed in the U.S., Congress struck a modest, but cliffavoiding deal that included for the most part tax increases on income and capital for the highest income earners that we think should prove over the longer term to be relatively benign from a tax perspective for investors especially when compared to alternative potential outcomes. While the compromise was heartily, if not irrationally, received by global equity markets on the January opening, we think it leaves the budgetary/financial problems in the U.S. far from resolved which could lead to continued volatility in equity markets until a more comprehensive solution is reached. In the meantime, while the markets' advance makes new entry points into stocks somewhat more difficult, we believe the portfolios remain reasonably valued and are cautiously optimistic as we head into the New Year.
Thank you for investing with us and for your continued confidence.
Tweedy, Browne Company LLC
William H. Browne
Thomas H. Shrager
John D. Spears
Robert Q. Wyckoff, Jr.
The performance data quoted herein represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.tweedy.com to obtain performance data that is current to the most recent month-end.
* The Adviser has contractually agreed to waive its investment advisory fee and/or to reimburse expenses of the Worldwide High Dividend Yield Value Fund and Global Value Fund II — Currency Unhedged to the extent necessary to maintain the total annual Fund operating expenses (excluding fees and expenses from investments in other investment companies, brokerage, interest, taxes and extraordinary expenses) at no more than 1.37%. This arrangement will continue at least through December 31, 2013. In this arrangement the Worldwide High Dividend Yield Value Fund and Global Value Fund II — Currency Unhedged have agreed, during the two-year period following any waiver or reimbursement by the Adviser, to repay such amount to the extent that after giving effect to such repayment such adjusted total annual Fund operating expenses would not exceed 1.37% on an annualized basis. The performance data shown above would be lower had fees and expenses not been waived and/or reimbursed.
§ The Value Fund's performance data shown above would have been lower had certain fees and expenses not been waived from December 8, 1993 through March 31, 1999.
The Funds do not impose any front-end or deferred sales charge. However, the Tweedy, Browne Global Value Fund, Tweedy, Browne Global Value Fund II – Currency Unhedged and Tweedy, Browne Worldwide High Dividend Yield Value Fund impose a 2% redemption fee on redemption proceeds for redemptions or exchanges made within 60 days of purchase. Performance data does not reflect the deduction of the redemption fee, and if reflected, the redemption fee would reduce the performance data quoted for periods of 60 days or less. The expense ratios shown above reflect the inclusion of acquired fund fees and expenses (i.e., the fees and expenses attributable to investing cash balances in money market funds) and may differ from those shown in the Funds' financial statements.
● Please note that the individual companies discussed herein represent holdings in our Funds, but are not necessarily held in all four of our Funds. Please refer to the footnotes on page 12 for the Funds' holdings in each of these companies.
Guru Discussed: Tweedy Browne: Current Portfolio, Stock Picks
Stocks Discussed: GETVF, SBSNY, HEINY, EMR, SAFRY, UNF, UNP, AKZOF, SI, BK, BA,