The largest detractor for the fiscal year was Countrywide (LSE:CWD), the U.K.’s largest real estate agency group. As we discussed in our last letter, businesses that were exposed to the U.K. real estate market were the prominent detractors to Fund performance in the second quarter. Following the Brexit vote in June 2016, Countrywide shares fell 30% by the close of the month. Since then, there has been a modest decline in real estate transactions outside of London and a larger decrease in London as consumers remain reluctant to make large, life-changing decisions in such an environment. The trading atmosphere has weakened over the past three to four months and has resulted in downward revisions to Countrywide’s near-term earnings estimates. However, in our view business value is not determined by what Countrywide will earn over the next 24 months, but rather the cash flow the business will generate over the next 50 years. We continue to believe the U.K.’s decision to exit the European Union has little long-term impact on the normalized levels of transactional activity in the housing market, which is more driven by population trends and household formation. We think Countrywide remains a compelling investment on a long-term basis.
From David Herro (Trades, Portfolio)'s third quarter 2016 International Small Cap Fund commentary.
