High equity valuations combined with increasing macroeconomic worries, not the least of which is the sense that monetary largesse may have run its course, continued to roil global equity markets in the first quarter. After a turbulent start to the New Year similar to that faced late last summer, equity markets rather quickly regained their composure to finish the second half of the quarter with a flourish, recouping much of the losses they suffered in the first half of the quarter. With the exception of the Wordwide High Dividend Yield Value Fund, which modestly underperformed its benchmark over the last three months, our remaining three Funds all outperformed their benchmarks in the first quarter, which led to an index beating result, albeit negative, over the last fiscal year in our two global value funds.
While results for industry groups and individual securities across our Funds were mixed during the quarter, it was the Funds’ consumer staples (food, beverage, and tobacco) and technology holdings that led advancing issues. This included strong returns from companies such as Coca Cola Femsa, Diageo, Unilever (UL, Financial), Philip Morris International (PM, Financial), and Imperial Brands as well as Cisco (CSCO, Financial), IBM (IBM, Financial), and the newly purchased Avnet (AVT, Financial). We also had a nice contribution from WalMart (WMT, Financial) in the Value Fund, and from ABB, Siemens, and Verizon (VZ, Financial) in the Worldwide High Dividend Yield Value Fund. Leading declining issues during the quarter were the Funds’ financial and pharmaceutical holdings including companies such as DBS Group, HSBC, Standard Chartered, Zurich Insurance, SCOR, Novartis, and Roche. Our oil & gas and media stocks including Conoco, Devon, Total, and Axel Springer also finished down for the quarter.
In terms of Fund activity, we took advantage of the price volatility during the quarter to establish new positions in Hang Lung Group, Linde, and Avnet. Linde, the German industrial gas company, we have owned in the past, while Hang Lung Group and Avnet are new to our Funds. Hang Lung Group is a successful operator of shopping malls in mainland China and Hong Kong, and at purchase was trading at a historically low ratio of price to book value (<40%). Avnet, on the other hand, is a global distributor of computer products and semiconductors which at purchase was trading at approximately 10X earnings and eight times earnings before interest, taxes and amortization (EBITA). We also took advantage of trading opportunities to add to several pre-existing positions including G4S (FRA:G4S, Financial), Ebara (TSE:6361, Financial), Diageo (DEO, Financial), DBS Group, Cisco, Novartis, Safran and Zurich Insurance among others.
On the sell side, we sold our remaining shares of BBA Aviation, Cenovus, and Vallourec. BBA had reached our estimates of intrinsic value while Cenovus, the Canadian oil sands operator, cut its dividend once again, as low oil prices led to increasing strains on near term cash flows. Vallourec, the seamless pipe manufacturer, continued to face headwinds from low oil prices, and we became increasingly uncomfortable with the company’s deteriorating financial position, particularly in light of looming debt maturities in early 2017.
We also took advantage of pricing opportunities to trim back a number of other holdings including Johnson & Johnson and American National Insurance, among others. We also sold our shares of Standard Chartered in the Worldwide High Dividend Yield Value Fund. The stock had been a disappointment, and we sensed that it could be a long time before the dividend would be reinstated.
Over the last eight months, global equity markets suffered two rather significant market breaks only to be followed by fairly aggressive recoveries in pricing. Neither was steep enough nor lasted long enough to present significant new opportunities, although we were able to take advantage of pricing opportunities in each instance to add to a number of pre-existing positions and establish a few new positions. As a result the cash positions in our Funds have been worked down somewhat. Should this pattern persist in the weeks and months ahead, we believe we are well positioned to take meaningful advantage as pricing opportunities present themselves.
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
Please note that the individual companies discussed herein represent holdings in our Funds, but are not necessarily held in all four of our Funds. Please refer to footnotes on page 12 for the Funds’ respective holdings in each of these companies.
Dated: April 29, 2016
