To Our Shareholders,
For the year ended December 31, 2020, the net asset value (NAV) total return per class AAA Share of The Gabelli Asset Fund was 11.2% compared with a total return of 18.4% for the Standard & Poor's (S&P) 500 Index. Other classes of shares are available. See page 3 for the performance information for all classes.
Enclosed are the financial statements, including the schedule of investments, as of December 31, 2020.
Performance Discussion (Unaudited)
The Fund primarily seeks to provide growth of capital. The Fund's secondary goal is to provide current income.
The Fund's investment strategy is to primarily invest in common and preferred stocks. The Fund focuses on companies which appear underpriced relative to their private market value (PMV). PMV is the value the Fund's investment adviser, Gabelli Funds, LLC, believes informed investors would be willing to pay for a company. Under normal market conditions, the Fund invests at least 80% of its assets in stocks that are listed on a recognized securities exchange or similar market. The portfolio managers will invest in companies that, in the public market, are selling at a significant discount to the portfolio managers' assessment of their PMV. The portfolio managers consider factors such as price, earnings expectations, earnings and price histories, balance sheet characteristics, and perceived management skills. The portfolio managers also consider changes in economic and political outlooks as well as individual corporate developments.
The first quarter of 2020 was one of the worst in stock market history, with the novel coronavirus that causes COVID-19 spreading rapidly around the globe, and societies everywhere responding with various forms of "social distancing," culminating with most of the global economy effectively being shut down. Energy markets plummeted, with a dispute between Saudi Arabia and Russia which led to oil output being increased amid the sharp drop in demand. The Federal Reserve slashed interest rates to near zero, and bought securities in a number of asset classes – treasuries, mortgaged backed securities, asset backed securities, corporate credit, and loans backed by the Small Business Administration – in order to stabilize markets and the economy.
Through June 30, the S&P 500 was off a mere 3%, having rallied almost 40% from its March low. Growth stocks continued their winning streak, powered by Facebook (FB, Financial), Amazon (AMZN, Financial), Netflix (NFLX, Financial), Google/Alphabet (GOOG, Financial)(GOOGL), Microsoft (MSFT, Financial), and Apple (AAPL). At mid-year, these six stocks had an aggregate market capitalization of $6.3 trillion, comprising 23% of the S&P 500 and contributing 5.4 points of positive year-to-date return. A preview of what recovery may ultimately bring for stocks occurred briefly in late May/early June when smaller capitalization and value stocks snatched market leadership before reversing.
Stocks continued to rise during the third quarter of 2020, with the S&P 500 up 8.9%, as gains in July and August were partially offset by a decline in September. The main issues still facing the markets remained largely around the COVID-19 pandemic: how long will it persist? Will "second wave" cases spike significantly higher, leading to a return to more dramatic economic shutdowns? When will therapeutics and vaccines be ready for development and distribution?
It took COVID-19 to end the United States' longest bull market at 131 months, only to give way to its shortest bear market at just over one month. After declining 34% peak-to-trough February to March, the S&P 500 Index ended up 18% for the year, up 65% off its March low. Unfortunately, even in the face of rising asset prices and an overall increased savings rate, an extended economic shutdown has strained the balance sheets of small business owners and impaired the skills of many employees.
The top contributors to the Fund's performance in 2020 included Sony Corp. (SNE, Financial) (3.0% of net assets as of December 31, 2020), a worldwide designer, producer, and seller of electronic equipment, instruments, and devices that saw benefits from the increased stay at home demand with growth in cloud gaming and strong sales of the PlayStation 5 gaming console; and Swedish Match AB (OSTO:SWMA, Financial) (2.5%), an international manufacturer of tobacco products that saw increased sales in the nicotine pouch category and benefited from the stay at home demand.
Some of our weaker performing stocks during the year were: Wells Fargo & Co. (WFC, Financial) (0.2%), a diversified financial services company that faced headwinds from the pandemic as millions of people were forced out of work and had difficulty making their mortgage, car, or credit card payments. Rolls Royce Holdings plc (LSE:RR., Financial) (less than 0.1%), a global industrial technology company that operates in four segments: civil aerospace, power systems, defense, and engine testing and design, suffered the effects of the pandemic as planes were grounded and travel came to an abrupt halt. Post-Brexit uncertainty and long running problems with engine blades have also been difficult for the company to overcome.
Thank you for your investment in The Gabelli Asset Fund.
We appreciate your confidence and trust.
