Tweedy, Browne Q4 Letter - All Funds Up, Named 2011 Int'l-Stock Fund Manager of the Year
The Tweedy Browne Funds held up quite well on a relative basis in this challenging environment with all four of our Funds besting their respective benchmark indices for the year by a significant margin. The same held for the fourth quarter; however, the Worldwide High Dividend Yield Value Fund, which was our best performer for the year, marginally trailed its benchmark for the quarter while producing a 6.17% return. Longer-term comparisons for all four Funds remain quite favorable.
We are also pleased to report that our management team was selected by Morningstar as 2011 International-Stock Fund Manager of the Year in the United States for its management of the Tweedy, Browne Global Value Fund, our flagship international Fund. While it is difficult to get terribly excited about a year in which we actually produced a negative total return, we were flattered by Morningstar’s acknowledgement of our Fund’s relative results. This was the third time this Fund had been nominated in the last four years for this honor. We are humbled by the fact that every year there are hundreds if not thousands of international funds vying for this award. While we are very proud to have been selected, we would remind our shareholders that there will no doubt be years where we will not deliver an award winning performance. It goes with the territory. A certain level of inconsistency is a perfectly normal, if not necessary, component of a successful long term record. The stocks, after all, do not know that we own them.†
Our returns for the year were driven in large part by continued strong results in the traditionally more defensive components of our portfolios, i.e. consumer staples ( food, beverage, and tobacco stocks) and healthcare companies (pharmaceuticals). Top performing issues for the year included stocks such as Philip Morris International (PM), Diageo (DEO), Unilever (UL), Johnson & Johnson (JNJ) and Roche (RHHBY). The more cyclical components of the portfolio, i.e. (industrials, financials, oil & gas, and media stocks), which returned to strength in the fourth quarter, struggled for much of the year clouded by growing concerns that the global economy was slowing, and the possibility of a disorderly monetary crisis in the Eurozone. Our fourth quarter results were led by continued strength in consumer staples stocks such as Philip Morris, Diageo, Walmart (WMT) and Unilever, and a significant uptick in some of our more cyclical holdings including Axel Springer, Total (TOT), Royal Dutch (RDS), and Union Pacific (UP).
Portfolio activity was modest during the quarter with only a few new buys and complete sales. However, we did take advantage of the volatility to add to and trim a number of portfolio positions. In terms of meaningful new buys, we began building positions in ABB (ABB), the German engineering company, United Overseas Bank, the Singapore banking company, and SCOR, the French insurance company. In terms of sales, we sold our position in SK Telecom (SKM) across all four of our Funds despite its attractive valuation metrics after they decided to go forward with what we felt was an ill-advised acquisition of a company in an entirely unrelated industry. We added to our position in Bangkok Bank, Novartis (NVS), G4S PLC, NGK Spark Plug, and Royal Dutch among others, and trimmed our positions in Fraser & Neave, Munich Re, Zurich Financial, and Linde.
All four of our Funds continue in large part to be positioned in larger, more globally diversified, underleveraged businesses that sell a plethora of products that are of growing interest to emerging middle classes around the globe. We continue to maintain significant positions in consumer staples and healthcare stocks, but also have substantial positions in more cyclical areas such as insurance, industrials, energy and media. While the spread in valuation between the more defensive and the more cyclical parts of the equity market has widened of late, the overall valuation for our portfolios remain quite reasonable to attractive with a forward 2012 weighted average price earnings ratio for our Funds' equities, which range between 11.4X and 12.3X estimated earnings. Also, the equities in our four Funds had an average weighted dividend yield ranging from approximately 3.5% to 4.5%. (Please note that the range of weighted average dividend yields shown above is not representative of a Fund's yield, nor does it represent a Funds' performance. The figures solely represents the range of the average weighted dividend yield of the common stocks held in each of the Funds' portfolios. Please refer to the 30-day Standardized Yields in the previous performance chart for each of the Fund's yields.)
In terms of our outlook, we remain cautiously optimistic particularly when we look further out on the investment horizon. In the near term, we are all bobbing around on the macroeconomic pond as issues such as the Southern European debt crisis, accelerating deficits in the U.S., the Arab Spring, and the potential for a slowing China, just to name a few, continue to buffet global equity markets. If you are willing to look out over a reasonable period, say three to five years, we believe we will probably be in a better place, and the businesses we own on the whole should be bigger and stronger.
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, 2012. 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 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.
† Established in 1988, the Morningstar Fund Manager of the Year award recognizes portfolio managers who demonstrate excellent investment skill and the courage to differ from the consensus to benefit investors. To qualify for the award, managers' funds must have not only posted impressive returns for the year, but the managers also must have a record of delivering outstanding long‐term risk‐adjusted performance and of aligning their interests with shareholders'. The Fund Manager of the Year award winners are chosen based on Morningstar's proprietary research and in‐depth qualitative evaluation by its fund analysts.