INVESTMENT SCORECARD
In the fourth quarter, the Fund benefited from the announced acquisition of Aerojet Rocketdyne (4.5% of net assets as of December 31, 2022, +40%) by L3 Harriss, its second trip to the altar in as many years. MSG Sports (4.3%, +40%), owner of the New York Knicks and New York Rangers, rebounded strongly as network and venue owner MSG Entertainment (1.8%, +2%) restructured its announced spin-off in a manner favorable to MSGS and sports asset valuations rose. Equipment maker CNH Industrial (2.8%, +43%) was strong as the farm economy remained robust. Media firms, including Paramount Global (4.4%, -8%), Grupo Televisa (1.2%, -15%), and Warner Bros Discovery (0.7%, -17%), continued to be weak as they face cyclical headwinds around advertising and secular challenges involving changing consumption behavior. Finally, Resideo Technologies (0.8%, -14%) declined due to inventory de-stocking and softer housing demand.
The biggest contributor by far to annual returns was long-time holding Swedish Match, which was acquired by Philip Morris International. Aerojet Rocketdyne (4.5%, 20%), to which we added during the year, was the second acquisition that benefited the portfolio. Sports holdings MSG Sports (4.3%, +11%) and Liberty Braves (2.2%, +15%, +14%) were key contributors for the year. Although the Fund’s energy exposure was limited, oil services firm Halliburton (1.2%, +75%) added to returns. Genuine Parts (4.8%, +27%), a distributor that serves as an inflation conduit, was also strong.
LET’S TALK STOCKS
Aerojet Rocketdyne Holdings Inc. (AJRD, Financial) (4.5% of net assets as of December 31, 2022) (AJRD – $55.93 – NYSE) (Cv., 2.25%, 12/15/2023), based in El Segundo, California, is a manufacturer of aerospace and defense products and systems for defense and space applications. The manufacturing operation is a leading technology based designer, developer, and manufacturer of aerospace and defense products for the U.S. government, including the Department of Defense and NASA. AJRD also manufacturers products for other governmental contractors and the commercial sector. On December 18, 2022, the company announced it had agreed to be acquired by L3Harris for $58 per share, in an all-cash transaction valued at $4.7 billion, inclusive of debt. The transaction is expected to close in 2023.
American Express Co. (AXP, Financial) (5.5%) (AXP – $147.75 – NYSE) is the largest closed loop credit card company in the world. The company operates its eponymous premiere branded payment network and lends to its largely affluent customer base. As of September 2022, American Express had131 million cards in force and nearly $99 billion in loans. The company’s strong consumer brand has allowed American Express to enter the deposit gathering market as an alternate source of funding, while the company’s affluent customers have picked up spending. Longer term, American Express should capitalize on its higher spending customer base, especially with Millennials, and continue to expand into other payment related businesses, such as corporate purchasing, while also growing in emerging markets. Similarly, the company is looking at the growing success of social media as an opportunity to expand its product base and payment options.
Madison Square Garden Sports (MSGS, Financial) (4.3%) (MSGS – $183.33 – NYSE), owner of the New York Knicks basketball team and the New York Rangers hockey team, is one the few ways for the public to access the positive dynamics of sports franchises. The company’s predecessor was originally spun-off from Cablevision in 2010 and subsequently separated its venue and entertainment businesses via Madison Square Garden Entertainment. Despite the interruption of COVID, the value of the teams has been growing along with the global popularity of basketball. The Knicks on-court has also improved with a core of young players and significant draft capital that should engender additional fan engagement and create incremental pricing power in future years.
Paramount Global (PARA, Financial) (4.4%) (PARAA – $19.61 – NASDAQ) is the product of the December 2019 recombination of Viacom and CBS, two companies controlled by the family of the late Sumner Redstone. Paramount (formerly ViacomCBS) is a globally-scaled content company with networks including CBS, Showtime, Nickelodeon, MTV, Comedy Central, VH1, BET, thirty television stations and the Paramount movie studio. The company has used its increased scale to better navigate the shifts in consumer behavior and monetization primarily through the successful launch of its Paramount+ direct-to-consumer platform.
