The Hickory Fund returned +18.15% in the fourth quarter compared to +19.91% for the Russell Midcap Index (the Fund's primary index). For the calendar year, the Hickory Fund returned +5.88% compared to +17.10% for the index.
The stock market is a mechanism for valuing the future, with stock prices reflecting both a business's current earnings as well as investors' expectations of future results. This explains why, despite rising COVID-19 cases and worsening health conditions at home and abroad in the present, markets leaped higher in November as positive vaccine trial results fueled investors' dreams of herd immunity and a fully reopened global economy in the not-too-distant future. The result was a reinvigorated rally and rising tide that lifted all boats (stocks), and our portfolio generated very strong absolute returns. This fourth- quarter performance lifted results for the year into positive territory but left our relative performance short of the benchmark for the quarter and year.
In the paragraphs that follow, we discuss the best and worst performances by stocks we owned each period, but it is particularly noteworthy to discuss what we did not own. Historically low interest rates fell even lower as the Federal Reserve moved aggressively to stabilize both credit and equity markets. Interest rates are a critical input into the stock market's discounting process; they represent the opportunity cost of a current investment versus a potential larger future pay-off. Said differently, the lower the interest rate environment, the more valuable future growth appears, leading investors to pay higher prices.
To be clear, a business's growth is an important component of its potential value. But, in our estimation, many businesses with elevated growth expectations were already fully valued (at least) and, therefore, were underrepresented in our portfolio compared to the (valuation-insensitive) index. Notably, the fourth quarter saw the rally broaden out to include more undervalued companies as the vaccine news gave investors increased confidence. Higher expectations for these businesses helped our portfolio more closely match the index's very strong return. Looking forward, we believe our portfolio is an attractive combination of companies with good business value growth potential, reasonable-to-cheap valuations, and solid future return prospects.
Portfolio gains were led this quarter by ACI Worldwide (ACIW, Financial). We have long held that ACI's key banking and payments services have been underappreciated. During the quarter, a well -known activist investor in the technology and payments sector went public with a similar thesis, asking management to realize that value via a sale of the company. We have trimmed our holdings to manage the size of the position and the potential risk that a deal may not materialize. Liberty SiriusXM (LSXMA, Financial) announced an important contract extension with popular radio personality Howard Stern along with a growing array of podcast offerings to enhance its service. First Hawaiian (FHB, Financial) shares rallied as the development of multiple COVID-19 vaccines represents a critical step toward reopening the vital tourism and hospitality industry in Hawaii. After starting the year at a low valuation, Qurate Retail's (QRTEA, Financial) business turnaround gained momentum, giving management the confidence to announce a second special dividend and the intention to resume share repurchases. Finally, Liberty Latin America (LILA, Financial) shares rose as it closed one of two pending acquisitions, strengthened its balance sheet with newly raised cash, and experienced improved operating results. Notably, all of our holdings had positive returns for the quarter.
Our calendar year performance was more mixed. We sold Fortune Brands (FBHS, Financial) and Colfax (CFX, Financial) during the market's first quarter sell-off to fund more attractive investment opportunities. In the fourth quarter, we also sold our remaining shares of Redwood Trust (RWT, Financial) as the company further recovered from its pandemic- induced low. Despite being a top contributor for the quarter, Liberty SiriusXM has yet to fully recover from the first quarter sell-off, but we remain confident in the company's long-term strategic value. Similarly, we believe quarterly contributor Liberty Latin America is finding its footing with an improved balance sheet, improving operations, and another accretive acquisition set to close in 2021.
Liberty Broadband (LBRDA, Financial), the Fund's largest holding and top calendar-year contributor, delivered excellent results. The pandemic almost certainly pulled forward Liberty Broadband's future growth, but it also demonstrated the indispensability and value delivered by their investment in Charter Communications's broadband connectivity service, which we believe will allow Charter to continue winning market share. Ingersoll Rand (IR, Financial) has managed the downturn admirably and continues to outperform on synergy delivery from its merger with Gardner Denver. We opportunistically added Martin Marietta (MLM) back to our portfolio this year. Together with our other building materials holdings, the company experienced solid performance as it is expected to benefit from potential future federal fiscal stimulus packages. Black Knight's (BKI) core mortgage servicing business stamped out another year of good results, and investors cheered recent capital allocation decisions, including the initial public offering (IPO) of investee Dun & Bradstreet (DNB). Finally, the previously mentioned strong quarterly result for Qurate Retail capped off an impressive rebound in 2020.
It was a very active year for new investment ideas in our portfolio, although the fourth quarter brought no new entrants. The full year "class of 2020" portfolio additions are comprised of businesses we have admired, studied and, in some instances, previously owned over many years, as well as companies that hit our radar more recently. These opportunistic purchases have already contributed strongly to overall results. Portfolio activity was otherwise light, and residual portfolio cash was generally unchanged.
The opinions expressed are those of Weitz Investment Management and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through 01/17/2021, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor's specific objectives, financial needs, risk tolerance and time horizon.
Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Please visit weitzinvestments.com for the most recent month-end performance.
