In the first quarter, the AMG Yacktman Focused Fund (Trades, Portfolio) (Class N, the Fund) returned 7.86%, underperforming the 11.26% return for its primary benchmark, the Russell 1000® Value Index. Over the last year we delivered strong results in the Fund compared to the Russell 1000® Value Index with the Fund appreciating 60.17%, outperforming the Russell 1000® Value benchmark which returned 56.09%.
In the first quarter we produced solid returns for AMG Yacktman Focused Fund (Trades, Portfolio). Markets continued to rise due to government stimulus and investor enthusiasm for an economic recovery. Valuations are now substantially above pre-pandemic levels, with markets at or near record-high levels on many metrics.
We think domestic markets are priced to deliver low returns with significant potential risk over the long term. In the first quarter we saw bizarre and reckless behavior, including short squeezes driven, in part, by retail traders, a family office over-leveraged and liquidated, continued high issuance of SPACs and public offerings of companies that are barely out of the business plan stage at high valuations.
This kind of activity tends to happen when too many people have too little concern about price and risk, and we believe this should be a time when thoughtful investors pay even more attention than usual to what they own and why they own it.
Our strategy, which focuses on the attributes of individual investments, allows us to be less concerned about overall market valuations because our results will largely be determined over time by our security selection. While it can be more difficult to find bargains in an expensive environment, we are confident in our ability to continue to find mispriced securities successfully.
During the quarter we added new positions, including Lockheed Martin Corp (LMT, Financial), L3Harris Technologies Inc (LHX, Financial), Northrup Grumman Corp (NOC, Financial), Berkshire Hathaway Class B (BRK.B, Financial), and Canadian Natural Resources Ltd. (TSX:CNQ, Financial).
Contributors included News Corp., Macy's Inc., and Bolloré
Shares of News Corp. (NWSA, Financial) rose due to continued strong performance in the company's online real estate and news business. During the quarter the news business signed multi-year agreements with Google and Facebook, which will make that business more valuable.
The online real estate businesses, including Realtor.com and REA, a publicly traded company in Australia also performed well. News Corp.'s REA holding is valued at approximately $9 billion or roughly $15 per News Corp. share, which is remarkable, considering News Corp. rescued the company 20 years ago for a small investment. News Corp.'s Realtor.com division also produced exceptional results during the quarter and could trade at a substantial valuation if that business is taken public or spun off with the REA stake.
Macy's Inc. (M, Financial) stock continued to rebound in the first quarter due to more robust business trends as the economy reopened. We reduced the position as the share price increased.
Bolloré's (XPAR:BOL, Financial) stock responded well to the news that Universal Music Group (UMG) would be publicly traded by year-end and another solid earnings report. We think the company could be in the early stages of unlocking significant additional value by simplifying its corporate structure or better highlighting its value.
Detractors included Samsung Electronics Preferred (Samsung), Continental AG, and KT&G Corp
Samsung's (XKRX:005935) shares lagged during the quarter after producing solid returns in 2020. Over the balance of the year, we expect the company's earnings to grow substantially, especially in the semiconductor businesses. Samsung is a fantastic business that should produce strong growth over time even though it trades at a low multiple and offers excellent value.
Continental AG's (XTER:CON, Financial) shares fell during the quarter after the company guided to weaker near-term earnings, in part due to the shortage in semiconductors that is impacting the automotive market.
KT&G Corp's (XKRX:033780) shares were modestly lower during the quarter as weak sales in dutyfree stores pressured its ginseng business. We think the shares are exceptionally inexpensive at current prices.
Conclusion
We are pleased with the results for the first quarter and the new additions we were able to add to the portfolio. We think we are now—or soon will be—in an environment where finding and owning mispriced securities will perform far better than owning a highly priced index over the long term. We will continue to be patient, objective, and diligent when managing the AMG Yacktman Focused Fund (Trades, Portfolio).
1 Returns for periods less than one year are not annualized.
2 The performance information shown for periods prior to June 29, 2012, is that of the predecessor to the Fund, The Yacktman Focused Fund (Trades, Portfolio), which was reorganized into the AMG Yacktman Focused Fund (Trades, Portfolio) on June 29, 2012, and was managed by Yacktman Asset Management (Trades, Portfolio) LP with the same investment policies as those of the predecessor Fund.
3 Since the inception of the Fund's Class N shares on May 1, 1997.
4 Since the inception of the Fund's Class I shares on July 24, 2012.
5 Effective June 30, 2020, the Fund's primary and secondary benchmarks were changed. The Russell 1000® Value Index became the primary benchmark and S&P 500® Index the secondary benchmark; previously the S&P 500 Index was the primary benchmark and the Russell 1000® Value Index was the secondary benchmark.
6 The Fund's Investment Manager has contractually agreed, through May 1, 2021, to limit fund operating expenses. The net expense ratio reflects this limitation, while the gross expense ratio does not. Please refer to the Fund's Prospectus for additional information on the Fund's expenses.
The views expressed represent the opinions of Yacktman Asset Management (Trades, Portfolio) LP as of March 31, 2021, are not intended as a forecast or guarantee of future results, and are subject to change without notice.
Disclosure
Investors should carefully consider the fund's investment objectives, risks, charges, and expenses before investing. For this and other information, please call 800.835.3879 or download a free prospectus. Read it carefully before investing or sending money.
Past performance is no guarantee of future results.
