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What Can We Earn If We Invest in the Top Five Holdings of Yacktman Asset Management?

Vera Yuan

Vera Yuan

78 followers
Besides Warren Buffett, Donald Yacktman has also done a great job at Yacktman Asset Management. As investors, you could easily benefit from his work by buying the stocks of Yacktman Asset Management and no time was too late for that. You could also buy the stocks that Yacktman has just bought. You can see the holdings of Donald Yacktman since 2000 and see what companies Donald Yacktman has been buying, selling, adding and reducing from GuruFocus.com.

For average investors, it is hard to have a portfolio that contains all the stocks in Yacktman Asset Management’s equity portfolio. After doing the research on investing in the top five holdings of Warren Buffett, it makes me wonder what the result could be if I invest in the top stocks of Don Yacktman. This is the coattail investing strategy that mimics the trades of well-know and historically successful investors. In this way, will my return beat the market? Will my returns beat the performances of Yacktman Fund (YACKX) and Yacktman Focused Fund (YAFFX)? I set July 3, 2006 as my start date since this is the earliest date I can find the complete stocks’ prices.

Assumptions and Facts

1. We had $10,000 to invest on July 3, 2006, and invested equally into the top five holdings of Yacktman Asset Management.

2. We would compare our market value of top five holdings each month with the market value if we invest directly into SPDR S&P 500 ETF (SPY). We could also compare with investing directly into Yacktman Fund (YACKX) and Yacktman Focused Fund (YAFFX).

3. The dividends we got we would reinvest into the same stock immediately.

4. All the prices we used in this research were adjusted close prices for splits and dividends.

5. If any of our top five holdings were being acquired, we would reinvest this into the new top five holdings.

Scenarios

1. We invested our money in the top five holdings of Yacktman Asset Management on July 3, 2006, and held these stocks until Jan. 2, 2013.

2. We followed exactly the same top five holdings of Yacktman Asset Management since July 3, 2006, and made adjustments quarterly until Jan. 2, 2013.

Data and Results

The following table 1 shows the top five holding of Yacktman Asset Management since July 3, 2006:

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Source: Database of GuruFocus.com LLC Scenario 1: Hold until 01/02/2013

From Table 1, we can see we invested $2000 equally in Lancaster Colony Corp (LANC), Kraft Foods (MDLZ), Coca-Cola Co (KO), AmeriCredit Corp (ACF) and Microsoft Corp (MSFT) on July 3, 2006. Without rebalance, we would hold these stocks until now. Yet AmeriCredit Corp was acquired by General Motors Company on Oct 1, 2010, we cashed out our money invested in AmeriCredit Corp on Oct. 1, 2009 and reinvested it into PepsiCo Inc. (PEP). The following Table 2 shows our investment strategy and portfolio’s components quarterly.

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In this way, we add all the money of our top five holdings and got the total assets of portfolio 1 each month. Instead of investing the top five holdings of Yacktman Asset Management, we could invest our $10,000 directly into SPDR S&P 500 (SPY), Yacktman Fund and Yacktman Focused Fund and see our returns. Compared with value of portfolio 1, SPY, YACKX and YAFFX, as well as the return of portfolio 1, SPY, YACKX and YAFFX, we could easily see whether we can beat the market, or beat YACKX, or beat YAFFX if we invested only in the top five holdings of Yacktman Asset Management. The results are as follows:

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Sources:

http://finance.yahoo.com/

Database of GuruFocus.com, LLC

From Chart 1, we can see Yacktman Focused Fund had higher returns than Yacktman Fund. They both outperformed our portfolio 1 for quite a long time. Clearly our portfolio 1 has outperformed the market too. Chart 2 shows how much our portfolio 1 could outperform the S&P 500, YACKX, and YAFFX. It is calculated by (Value of Portfolio/Value of SPY-1), (Value of Portfolio/Value of YACKX-1), and (Value of Portfolio/Value of YAFFX-1). From Chart 2, we can clearly see that our portfolio 1 beat the market from July 3, 2006 to Sept. 1, 2006. Then until Aug. 1, 2008, our portfolio 1 underperformed the market.

This is mainly because the market crash in 2008 caused more damage to a concentrated portfolio. After that, our portfolio 1 always outperformed the market. However, our portfolio 1 underperformed Yacktman Focused Fund and Yacktman Fund at all times except for the first quarter of 2009. Chart 3 indicates the monthly return we could earn. We can see our portfolio 1, Yacktman Focused Fund and Yacktman Fund followed the market trend, yet outperformed it for most of the time. Also we can notice that in the first quarter of 2009, Yacktman Fund and Yacktman Focused Fund outperformed the market and our portfolio 1 by wide margins. The total return for investing in SPY is 33.06%, the total return for investing in portfolio 1 is 59.61%, the total return for investing YACKX is 87.40%, and the total return for investing YAFFX is 95.42% if we held stocks until now.

The Table 3 shows the annualized performance of the S&P 500, portfolio 1, YACKX and YAFFX. We can see our portfolio 1, YACKX and YAFFX did relatively well in 2008, 2009 and 2011, with our portfolio 1 doing especially well in 2011.

Scenario 2: Rebalance Each Time Top Five Holdings Changed

Unlike the investment strategy we discussed earlier, we followed exactly the same top five holdings of Yacktman Asset Management since July 3, 2006, as shown on Table 1, and made adjustments quarterly. We call it portfolio 2.

The results are as follows:

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1820835077.jpg Sources:

http://finance.yahoo.com/

Database of GuruFocus.com, LLC

From Chart 4, we can clearly see our portfolio 2, Yacktman Focused Fund and Yacktman Fund have done much better than the market after Aug. 1, 2008. From Chart 5, we can get the similar result as we get from Chart 2 except that our portfolio 2 outperformed the Yacktman Fund for the last two quarters of 2012. Chart 6 indicates that our portfolio 2, Yacktman Focused Fund and Yacktman Fund followed the market trend, yet outperformed it for an extended period of time.

Similar to the result of Chart 3, we can observe that Yacktman Fund and Yacktman Focused Fund outperformed the market and our portfolio 1 by big margins in the first quarter of 2009. The total return for investing SPY is 33.06%, the total return for investing in portfolio 2 is 96.44%, the total return for investing YACKX is 87.40%, and the total return for investing YAFFX is 95.42% if we held stocks until now. It is easily observable from Table 4 that our portfolio 2 has done pretty well, even better than the Yacktman Fund, and almost as good as the Yacktman Focused Fund. And the reason for this good performance is that portfolio 2 actively tracked the Yacktman Asset Management and made adjustments to its holdings in order to maximize the return.

Conclusion

Above results show investors will outperform the market by investing in the top five holdings of Yacktman Asset Management without rebalancing each quarter from 2006 to 2012 (need to rebalance when any of our top five holdings was acquired). But they will do much better if they track the top five holdings and rebalance when top five holdings changed. This is much more profitable and can beat the market for the long term. Though this might not be the case for all the other funds, it still shows its advantage over passive investment strategy in our research.

However, both of our portfolio 1 and portfolio 2 have underperformed Yacktman Fund and Yacktman Focused Fund. This is mainly because we only follow the top 5 holdings of Yacktman Asset Management. Sometimes, the percentage of sixth, or seventh, or even eighth position may be close to the percentage of the fifth holding. In this case, the fifth position changes often. Also the sixth, or seventh, or even eighth position might play an important role, yet they did not contribute to our gains. Such as during the first quarter in 2009, the stock price of Liberty Media Corp (LINTA) increased 68.79% and it was the eighth holding (4.04%) of Yacktman Asset Management. The stock price of News Corp Class A (NWSA) increased 30.71% and it was the ninth holding (3.27%). The stock price of Lancaster Colony Corp (LANC) increased 21.18% and it was the sixth holding (5.64%). Sometimes, smaller positions can make a huge difference. Yacktman Fund and Yacktman Focused Fund are more diversified than our portfolios; this can reduce the risk of an extreme fall.

Compared with Yacktman Focused Fund and Yacktman Fund, we can see Yacktman Focused Fund had better performances from July 3, 2006 through Jan. 2, 2013.


Rating: 3.1/5 (7 votes)

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