The father and son team in the Yacktman Funds
Donald and Stephen Yacktmant is a father and son team in Austin, Texas. Together, they manage two mutual funds, The Yacktman Fund and The Yacktman Focus Fund. Both funds follow similar investment philosophy, with the Focus Fund holding few stocks than the former.
Through March 31, 2009, The Focus Fund averaged -23.71, -6.03, -1.21, and 4.30% during the past one, three, five, and ten years, vs. S&P 500’s annual return of -38.09, -13.06, -4.76, and -3.00% during the same period. The Yacktman Fund posted similar returns to the Focus fund. On May 20, Bloomberg featured an article on the Focus Fund, and stated that Morningstar put the fund in top 1 percent in the performance for the past one, three, five, and 10 years. Yacktman Focus is the only diversified U.S. mutual fund with more than more than $100 million to be in the highest percentile in each of those periods.
Triumph of Value Investing
The good performance of The Yacktman funds is a triumph of value investing. In the firm’s 2008 annual report, the Yacktmans discussed their investment style: Our favorite investments are well-capitalized companies with dominant franchises run by good management teams. We like businesses that are predictable and capitalized to weather difficult economic environments. The Yacktman Fund does not employ leverage. We work hard to achieve absolute returns. In an environment like last year’s, where that is not possible on a short term basis, we attempt to minimize losses and take advantage of the new bargains that a falling market creates. We are open about our approach to investing so that all Yacktman Fund investors can understand and have confidence in what we do. As investors, we look for value and do not participate in speculative activities or market fads.
The Yacktman father and son team have fewer than 40 stocks in the funds and in 2008, when values are hard to get by, they kept as much as 25% in cash. But starting from the fourth quarter of 2008, they started to reduce cash and some of the consumer stocks which held well in the down turn in order to adjust the portfolio and take advantage of the fears of the other people.
The Yacktmans are very confident with their portfolio in the Future. Not only they increased the weighting of equity in the portfolio, they also believe their stocks should do will with or without a meaningful near-term economic recovery. Further more, they believe the difficult times allow companies with solid balance sheets and dominant competitive positions to emerge from a downturn even stronger as they take advantage of the challenges that struggling or dying competitors face.
In addition to common stocks, they also purchased debt and preferred securities which offer attractive equity-like rates of return with more modest levels of risk.
The aggressive posture they took is paying off as the Focus Fund gained 33.1% YTD through June 2, 2009, and The Yacktman Fund is up 28.31%, both beating the benchmark index by a large margin.
1Q09 Top Holdings:
According to GuruFocus Data, as of March 31, 2009, Yacktman Funds concentrate on Consumer Services (32.4%) and Consumer Goods (22.8%). And their top holdings include: Viacom Inc. (VIA-B), The CocaCola Company (KO), Microsoft Corp. (MSFT), AmeriCredit Corp. (ACF), eBay Inc. (EBAY), News Corp. (NWS-A)
No. 1: Viacom Inc. (VIA-B), Weightings: 9.73% - 3,415,950 Shares
Viacom is a leading global entertainment content company whose brands includes the multiplatform properties of MTV Networks, BET Networks, Paramount Pictures, Paramount Home Entertainment, and DreamWorks. Viacom Inc. has a market cap of $12.87 billion; its shares were traded at around $23.45 with a P/E ratio of 9.8 and P/S ratio of 0.9.
Last Year Viacom fell from low 40’s to a bit under $12 as the recession negatively impacted the advertising revenue. The market also concerned the company’s high debt level and the uncertainty surrounding the personal financial troubles of Summer Redstone, the chairman of Viacom. According to Annual 2008 report, the Yacktmans expect the company to continue to generate significant free cash flow going forward, and believe that at its low point the stock was selling only 5-6 times our estimate of 2009 earnings.”
No. 2: The CocaCola Company (KO), Weightings: 9.7% - 1,347,040 Shares
The Coca-Cola Company is the world's largest beverage company and is the leading producer and marketer of soft drinks. The CocaCola Company has a market cap of $114.95 billion; its shares were traded at around $49.66 with a P/E ratio of 15.9 and P/S ratio of 3.5. The dividend yield of The CocaCola Company stocks is 3.3%. The CocaCola Company had an annual average earning growth of 5.3% over the past 10 years. GuruFocus rated The CocaCola Company the business predictability rank of 2-star.
Despite the steady growth in earnings, KO shares did not go anywhere in the past 10 years. The Yacktmans own some shares of KO back or before Year 2001 (65,000 shares). Their ownership peaked in 1Q06 with 2.4 million shares and has been distributing since then. Now (1Q09) they own 1.3 million shares. In a sense, they are treating KO shares as some kind of money market fund. The KO dividend yield is attractive and beats any kind of money market fund yield.
No. 3: Microsoft Corp. (MSFT), Weightings: 8.76% - 2,909,820 Shares
Microsoft develops manufactures, licenses and supports a wide range of software products for a multitude of computing devices. Microsoft Corp. has a market cap of $190.26 billion; its shares were traded at around $21.4 with a P/E ratio of 11.9 and P/S ratio of 3.1. The dividend yield of Microsoft Corp. stocks is 2.4%. Microsoft Corp. had an annual average earning growth of 10% over the past 10 years. GuruFocus rated Microsoft Corp. the business predictability rank of 4-star.
The Yacktmans started to own the software company from 2003 and did not have a serious position until 2Q06 when they increased shares owned from 150,620 shares to 2.4 million shares. They have been buying the stock steadily since them and now they owned 2.9 million shares.
No. 4: AmeriCredit Corp. (ACF), Weightings: 8.14% - 8,478,900 Shares
AmeriCredit Corp. is an independent automobile finance company that provides financing solutions indirectly through auto dealers and directly to consumers in the United States and Canada. AmeriCredit Corp. has a market cap of $1.81 billion; its shares were traded at around $13.72 with a P/E ratio of 228.7 and P/S ratio of 0.7. AmeriCredit Corp. had an annual average earning growth of 13.2% over the past 10 years. GuruFocus rated AmeriCredit Corp. the business predictability rank of 2.5-star.
This is a darling company that other two Investment Gurus Bruce Berkowitz and Ian Cumming. Between the two of them, they control the majority of the company. The Yacktmans also discussed their view toward this company in their Q1 Letter to Shareholders:AmeriCredit ( ACF) was the biggest detractor from performance during the last quarter as the stock slid by more than 20%, moving in concert with the continued decline in financial service shares. Recently, the company successfully renegotiated its warehouse line of credit, which will likely enable it to operate through the difficult economic environment. We continue to believe that the shares are worth far more than the current price even if the business liquidates over the next few years. If AmeriCredit’s business model recovers, the returns could be significant.
The Yacktmans traded in and out of this stock since year 2003 when they acquired 3.2 million shares for $3.3 per share. They have been trading in and out of this stock since then, and recently since 4Q07, they have been mostly buying, increasing shares from 3.6 million shares to today’ 8.5 million now. Their ownership demonstrated that there are fully aware of the value of the companies, a knowledge enable them taking advantage of the situation when the stock price is low.
No. 5: eBay Inc. (EBAY), Weightings: 6.26% - 3,041,500 Shares
eBay is one of the world's largest online trading communities. eBay Inc. has a market cap of $23.1 billion; its shares were traded at around $17.96 with a P/E ratio of 12.6 and P/S ratio of 2.7. eBay Inc. had an annual average earning growth of 29% over the past 5 years.
The Yacktmans bought a small position (323,800) in the stock in 3Q06 when the stock was much higher ($28). They accumulated their shares throughout the years as the stock price continued to decline since it reached a high in 4Q07. In 4Q08 they bought another one million shares, bringing the total to 3.0 million shares.
No. 6: News Corp. (NWS-A), Weightings: 6.1% - 5,629,100 Shares
News Corp. is a diversified entertainment company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers and information services; book publishing; and other. News Corp. has a market cap of $15.45 billion; its shares were traded at around $0 with a P/E ratio of 6.86 and P/S ratio of 0.47. The dividend yield of News Corp. stocks is 1.41%. News Corp. had an annual average earning growth of 17.2% over the past 5 years.
The Yacktmans bought 2.5 million shares of News Corp. in 4Q08 and another 3.1 million shares in 1Q09. Making it one of the top buys recently. In the Q1 Letter to Shareholders, they stated:
We increased our weighting in media stocks during the quarter adding to our position in News Corporation. In the last 18 months, News Corporation shares declined from the low $20’s to just under $5 per share a result of some company specific missteps, the market correction, and a slump in advertising. Rupert Murdoch, the CEO and largest shareholder of News Corporation, is a talented leader who has achieved the seemingly impossible several times. In the mid‐1980s, he built Fox into the fourth major television network, at a time few thought anyone could challenge ABC, NBC, and CBS. Today FOX is the #1 network. Later he launched FOX News as a competitor to CNN in the cable news business. Today, FOX News is #1 in cable news ratings.
News Corporation has achieved success in building a significant presence in satellite broadcasting with its Sky television brands in the United Kingdom, Italy and around the world. The company has an enviable position globally and operates more than 150 cable channels around the world, offering substantial growth potential in years to come.