The other day he asked me if I knew of any good fund managers who I thought could make him some money.
Not wanting to send him on a wild ride I suggested Donald Yacktman’s Focused Fund as one that had a stellar long-term track record.
My father in law said “No, I’m looking for someone who is hot and can really make some money quickly. Anyone can have a good long term track record.”
I tried to tell him that even Warren Buffett can’t predict where market prices go in the short term, but my father-in-law has been watching the Fast Money show on CNBC. Those guys can tell you where the market is going tomorrow.
The Yacktman Focused Fund
I’ve promised myself that I’m going to spend more time this year looking at the portfolios of successful managers who run concentrated funds. I want to narrow down my list of ideas to the best of the best.
I’ve been watching interviews with Don Yacktman and really like what he has to say. He is market agnostic and company focused.
My preference is his Yacktman Focused Fund where he puts a much heavier weighting on his high-conviction ideas.
The fund has an excellent performance record.
|10 Yr||5 Yr||3 Yr||1 Yr|
|Yacktman Focused Fund||10.95%||10.59%||9.93%||10.57%|
Outperforming the market by more than 3% per year over a 10-year stretch is a significant achievement. Yacktman has created a lot of wealth for his investors.
At the end of 2012 the 10 largest positions in the Yacktman Focused Fund were as follows:
|Proctor and Gamble||11.40%|
|Johnson and Johson||3.00%|
To help narrow down which of these holdings Yacktman might like the most currently, I decided to go through his year-end portfolio review and check up on his observations.
Portfolio Review – December 2012
In 2012, News Corp was the biggest contributor to fund returns, appreciating more than 40%. Business execution was strong, especially in the cable content division, and the company continued its shareholder friendly behavior, both repurchasing a significant amount of stock and announcing that it would be splitting the company into two separate entities. We think the split could help the shares continue to deliver strong results as the market more fully appreciates what we see, which is a fast growing cable content division that has had its extraordinary growth obscured by declining newspaper results.
Viacom produced strong free cash flow and the stock appreciated solidly last year, though the company struggled with ratings at networks like Nickelodeon and MTV. Viacom has recently stepped-up its investments in new programming which we believe will help results this year. Our position in Comcast also rose sharply in 2012.
Consumer staples shares were generally modest performers during the year as the stocks of high-quality, stable staples businesses were left behind in the broader market rally. From August 30, 2010 through January 14, 2013, Procter & Gamble, PepsiCo, Sysco and Clorox were up 17%, 10%, 11% and 17% before dividends compared to the S&P 500’s strong 40%. We believe that this underperformance relative to the broader market is more a result of investor sentiment than results and should lead to better than average performance from these companies going forward. We especially like these staples positions because the rates of return we expect over time are especially attractive given the consistency and quality of these businesses.
Avon’s shares disappointed in 2012, though we believe Avon’s global distribution channel and products have significantly more value than the current share price. We like the management changes that occurred at the company and believe that the shares are very attractive given the expected earnings power of the business.
Many PC-related stocks struggled last year as concerns about the future of the business caused investors to avoid these shares. Our position in Microsoft appreciated only modestly, even though the business executed fairly well. HP declined, though we were pleased to see a much improved management focus. In the latter part of the year we purchased a small position in Dell. Both Dell and HP have significant business exposure to services and non-PC businesses, which we think have been underappreciated recently. While the challenges these companies face are real, we believe the valuations offer compelling potential over time.
Based on what Yacktman is saying in his review, it appears that he is most bullish on his consumer staples holdings. His exact words were:
We believe that this underperformance relative to the broader market is more a result of investor sentiment than results and should lead to better than average performance from these companies going forward. We especially like these staples positions because the rates of return we expect over time are especially attractive given the consistency and quality of these businesses.
The four consumer staples holdings that Yacktman singles out are Proctor and Gamble (NYSE:PG), Pepsico (NYSE:PEP), Sysco (NYSE:SYY) and Clorox (NYSE:CLX).
And just like that, I’ve got my homework for the rest of the week. I’ve looked at the portfolio of a top-notch concentrated investor. I’ve found both his favorite sector and his favorite ideas in that sector. Now I can look more closely at these companies and decide which ones (if any) should be added to my portfolio.