1st Quarter 2015
All four of the Tweedy, Browne Funds made financial progress in the first quarter as global equities, particularly European equities, surged forward after the year-end turbulence associated with the collapse in oil prices. However, it was a challenging quarter for relative returns, and bargain hunting remains severely constrained by equity valuations that are now well above average.
The performance data quoted herein represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.tweedy.com to obtain performance data that is current to the most recent month-end.
* Prior to January 1, 2015, the Adviser had contractually agreed to waive its investment advisory fee and/or to reimburse expenses of the Global Value Fund II — Currency Unhedged to the extent necessary to maintain the total annual fund operating expenses (excluding fees and expenses from investments in other investment companies, brokerage, interest, taxes and extraordinary expenses) at no more than 1.37%. This arrangement terminated on December 31, 2014. The Global Value Fund II – Currency Unhedged has agreed, during the two-year period following any waiver or reimbursement by the Adviser, to repay such amount to the extent that after giving effect to such repayment the Fund’s adjusted total annual fund operating expenses would not exceed 1.37% on an annualized basis. The performance data shown above would be lower had fees and expenses not been waived and/or reimbursed.
§ The Value Fund’s and Worldwide High Dividend Yield Value Fund’s performance data shown above would have been lower had certain fees and expenses not been waived from December 8, 1993 through March 31, 1999 (for the Value Fund) and from September 5, 2007 through December 31, 2013 (for the Worldwide High Dividend Yield Value Fund).
Results during the quarter were largely driven by strong returns in our European holdings, most notably several of our consumer staples holdings and a number of our insurance stocks. Companies such as Heineken, Unilever, Henkel, Munich Re, and SCOR had a strong quarter as did media stocks such as Axel Springer, Mediaset, and Tamedia. Two of our aerospace and defense holdings, Safran and BAE, also were strong contributors to the quarter’s returns.
In contrast, most of our bank holdings including DBS, UOB, HSBC, and Bangkok Bank had disappointing results. The lone exception in the group was Standard Chartered, the UK-based global bank, which was up nicely during the quarter as they announced a change in CEO that appeared to be favorably received by equity markets. The stock prices of a number of our oil & gas holdings, including Cenovus, the Canadian oil sands company; Pacific Rubiales, the Columbian heavy oil specialist; and National Oil Well Varco, a premier offshore oil service company, continued to be weak. On the other hand, the large fully integrated oil companies, Total and Royal Dutch, had solid returns for the quarter.
Portfolio activity was relatively modest during the quarter. Just prior to quarter end, we established positions for both Global Value Fund and Global Value Fund II – Currency Unhedged in Hyundai Mobis, which is the after- sales, module, and core parts business for Hyundai and Kia automobiles. Hyundai Mobis has had a good record of compounding its intrinsic value over the last ten years, and at purchase was trading at less than ten times earnings, and less than 60% of our estimates of the company’s intrinsic value. In addition, we added to a number of positions across our Fund portfolios including Antofagasta, the Chilean mining company, HSBC, and Standard Chartered.
On the sell side, we sold our remaining shares of Fujitec, Joy Global, and Kone, and decided to take a tax loss in Pacific Rubiales (TSX:PRE, Financial), whose stock price had declined precipitously after oil prices collapsed around year-end. We also trimmed back our position somewhat in Munich Re as well as in Axel Springer (XTER:SPR, Financial), G4S, Novartis, and Zurich Insurance.
Just after quarter end, Federal Express announced that it would be acquiring TNT Express (XAMS:TNTE, Financial), the Dutch parcel company, one of our holdings in both the Global Value Fund and Global Value Fund II – Currency Unhedged, in an all cash offer of eight euros a share, or a 37% and 39% premium over our cost in the shares. As you will recall, we purchased TNT a couple of years back after their previously proposed merger with UPS (UPS, Financial) fell apart when European regulators failed to approve the deal, feeling it would be anti-competitive. We believe there should be no competitive issues with Federal Express this time, as their footprint in Europe is much smaller than that of UPS. They were able to use a strong currency, the US dollar, and extremely low-cost debt to secure a deal that is attractive for all parties to the transaction.
Foreign currencies continued to be quite volatile during the quarter as the euro continued its slide against the US dollar in the face of quantitative easing in the Eurozone, while the Swiss Franc surged in value relative to most currencies, particularly the euro, as Swiss central bankers removed the cap they had been maintaining against the euro. Our currency hedges on both the Global Value Fund and the Value Fund continued to protect us from the bulk of this volatility.
The S&P 500, the Dow Jones Industrial Average, and the MSCI World Index all climbed to record highs during the quarter. The MSCI EAFE Index is just marginally below its all time high as well. Equity valuations as a result are now well above average with the exception of some commodity- based businesses, and the bulk of those do not trade at prices that we feel offer adequate compensation for the risks assumed. Cash reserves as of March 31 were approximately 26% in Global Value, 19% in Global Value Fund II – Currency Unhedged, 15% in Value, and 12% in the Worldwide High Dividend Yield Value Fund. Global Value Fund II – Currency Unhedged remains closed to new investors, and we are diligently managing daily inflows into our other three Funds. With little to no yield to be found on cash, it has become the ultimate contrarian investment. As we have said in previous updates, if global equity markets continue their advance in the weeks and months ahead, we believe our shareholders should participate in the advance, but will likely trail most fully invested benchmark indices. On the other hand, if volatility returns to equity markets, or we get a long overdue correction in stock prices, our Funds are well positioned with plenty of dry powder to take advantage.
Thank you for investing with us and for your continued confidence.
Tweedy, Browne Company LLC
William H. Browne
Thomas H. Shrager
John D. Spears
Robert Q. Wyckoff, Jr.
Managing Directors
Dated: April 27, 2015
” Please note that the dividend yield of each of the top 20 equity holdings in the Fund's portfolio shown above is not representative of the Fund's yield, nor does it represent performance of the Fund. These figures solely represent the dividend yield of the individual stocks shown. Please refer to the standardized yield under “Investment Results” on the following page for the Fund’s yield.
Other Fund Information, March 31, 2015
Number of Issues: 32
Net Assets of Fund: $569 million 12-Month Turnover: 7.29%
NOTE: Allocations of investments shown above reflect the Fund’s investments on the date indicated and may not be representative of the Fund’s current or future holdings.
30-day standardized yield as of 3/31/15: 1.66%
Total Annual Fund Operating Expense Ratio as of 3/31/14: 1.37%*
The performance shown above represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.tweedy.com to obtain performance data which is current to the most recent month end.
* The performance data shown above would have been lower had certain fees and expenses not been waived from September 5, 2007 through December 31, 2013.
The Fund does not impose any front-end or deferred sales charges. However, a 2% redemption fee is imposed on redemption proceeds for redemptions or exchanges made within 60 days of purchase. Performance data does not reflect the deduction of the redemption fee, and if reflected, the redemption fee would reduce the performance data quoted for periods of 60 days or less. The expense ratios shown above reflect the inclusion of acquired fund fees and expenses (i.e., the fees and expenses attributable to investing cash balances in money market funds) and may differ from those shown in the Fund’s financial statements.
Index Descriptions
1 Inception date for the Fund was September 5, 2007. Morningstar information is available at month end only; therefore, the closest month end to the inception date of the Fund, October 31, 2007, was used.
2 MSCI World Index (US$): The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (US$) reflects the return of this index for a US dollar investor.
3 Morningstar World Stock Fund Average: Average results of all mutual funds in the Morningstar universe that invest throughout the world while maintaining a percentage of assets (normally 25-50%) in the U.S. These funds may or may not be hedged to the US$, which will affect reported returns.
” © 2015 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers;
(2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
1st Quarter 2015
Footnotes TWEEDY, BROWNE FUND INC.
The MSCI EAFE (in USD) is an unmanaged capitalization-weighted index of companies representing the stock markets of Europe, Australasia and the Far East. The MSCI EAFE (Hedged to USD) consists of the results of the MSCI EAFE Index hedged 100% back into US dollars and accounts for interest rate differentials in forward currency exchange rates. Results for both indexes are inclusive of dividends, net of foreign withholding taxes and do not reflect any fees or expenses.
The S&P 500 Index/MSCI World Index (Hedged to US$) is a combination of the S&P 500 Index and the MSCI World Index (Hedged to US$) linked together by Tweedy, Browne Company, and represents the performance of the S&P 500 Index for the periods 12/8/93 - 12/31/06, and the performance of the MSCI World Index (Hedged to US$) beginning 1/01/07 and thereafter. For the period from the Value Fund's inception through 2006, the Investment Advisor chose the S&P 500 as the relevant market benchmark for the Value Fund. Starting in mid-December 2006, the Value Fund's investment mandate changed from investing at least 80% of its assets in U.S. securities to investing no less than approximately 50% in U.S. securities, and so the Investment Adviser chose the MSCI World Index (Hedged to US$) as the most relevant benchmark for the Value Fund for periods starting January 2007. Effective July 29, 2013, the Value Fund has removed the 50% requirement and continues to use the MSCI World Index (Hedged to US$) as the most relevant index for the Fund.
The S&P 500 Index is an unmanaged capitalization-weighted index composed of 500 widely held common stocks that assumes the reinvestment of dividends. The index is generally considered representative of U.S. large capitalization stocks.
The MSCI World Index (in USD) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Hedged to USD) consists of the results of the MSCI World Index with its foreign currency exposure hedged 100% back into U.S. dollars. The index accounts for interest rate differentials in forward currency exchange rates. Results for this index are inclusive of dividends and net of foreign withholding taxes.
Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made.
As of March 31, 2015, Tweedy, Browne Global Value Fund, Tweedy, Browne Global Value Fund II – Currency Unhedged, Tweedy, Browne Value Fund, and Tweedy, Browne Worldwide High Dividend Yield Value Fund had each invested the following percentages of its net assets, respectively, in the following portfolio holdings: Heineken (2.3%, 1.9%, 3.3%, 0.0%); Unilever (1.8%, 1.5%, 2.6%, 3.5%); Henkel (2.1%, 1.3%, 2.2%, 0.0%); Munich Re (1.6%, 1.4%, 1.0%, 1.1%); SCOR (2.0%, 3.1%, 0.0%, 3.3%); Axel Springer (2.3%, 2.9%, 1.6%, 3.1%); Mediaset (1.0%, 0.9%, 0.9%, 0.0%); Tamedia (0.8%, 0.0%, 0.0%, 0.0%); Safran (2.9%, 4.2%, 0.0%, 0.0%); BAE (0.0%, 0.9%, 0.0%, 0.0%); DBS (1.7%, 2.0%, 0.0%, 2.4%); UOB (0.8%, 1.2%, 1.5%, 3.1%); HSBC (1.7%, 1.8%, 1.2%, 3.2%); Bangkok Bank (0.8%, 1.5%, 0.0%, 0.4%); Standard Chartered (3.4%, 3.7%, 3.5%, 3.8%); Cenovus (0.0%, 0.9%, 0.0%, 0.6%); Pacific Rubiales (0.0%, 0.0%, 0.0%, 0.0%); National Oil Well Varco (0.1%, 0.6%, 0.0%, 0.0%); Hyundai Mobis (0.3%, 0.5%, 0.0%, 0.0%); Antofagasta (1.5%, 1.6%, 0.0%, 0.0%); Fujitec (0.0%, 0.0%, 0.0%, 0.0%); Joy Global (0.0%, 0.0%, 0.0%, 0.0%); Kone (0.0%, 0.0%, 0.0%, 0.0%); G4S (1.6%, 2.8%, 0.0%, 3.3%); Novartis (3.2%, 3.5%, 4.9%, 4.6%); Zurich Insurance (2.2%, 2.0%, 2.1%, 3.0%); and TNT Express (1.0%, 1.8%, 0.0%, 0.0%). The previous portfolio holdings reflect the Funds’ investments on the date indicated and may not be representative of the Funds’ current or future holdings.
Selected Purchases & Sales illustrate some or all of the largest purchases and sales made for each Fund during the preceding quarter and may not include all purchases and sales. Some “undisclosed” names may have been withheld where disclosure may be disadvantageous to a Fund’s accumulation or disposition program.
Current and future portfolio holdings are subject to risk. The securities of small, less well-known companies may be more volatile than those of larger companies. In addition, investing in foreign securities involves additional risks beyond the risks of investing in securities of U.S. markets. These risks include economic and political considerations not typically found in U.S. markets, including currency fluctuation, political uncertainty and different financial standards, regulatory environments, and overall market and economic factors in the countries. Value investing involves the risk that the market will not recognize a security's intrinsic value for a long time, or that a security thought to be undervalued may actually be appropriately priced when purchased. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time.Investors should refer to the prospectus for a description of risk factors associated with investments in securities held by the Fund.
Although the practice of hedging against currency exchange rate changes utilized by the Tweedy, Browne Global Value Fund and Tweedy, Browne Value Fund reduces the risk of loss from exchange rate movements, it also reduces the ability of the Funds to gain from favorable exchange rate movements when the U.S. dollar declines against the currencies in which the Funds’ investments are denominated and in some interest rate environments may impose out-of-pocket costs on the Funds.
Tweedy, Browne Global Value Fund, Tweedy, Browne Global Value Fund II – Currency Unhedged, Tweedy, Browne Value Fund, and Tweedy, Browne Worldwide High Dividend Yield Value Fund are distributed by AMG Distributors, Inc., Member FINRA/SIPC.
This material must be preceded or accompanied by a prospectus for Tweedy, Browne Fund Inc.
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