Tuesday, January 29, 2013

Yacktman Funds 4Q 2012 Update

Here's the top 10 holdings of the Yacktman Fund (YACKX), according to Morningstar.com:

Yacktman Fund Top 10 Positions (as of 12/31/12)
News Corp. (NWSA)
Procter & Gamble (PG)
Pepsi (PEP)
Cisco (CSCO)
Sysco (SYY)
Viacom (VIAB)
Microsoft (MSFT)
Coca-Cola (KO)
C. R. Bard (BCR)
Stryker (SYK)

Yacktman Focused Fund (YAFFX) is very similar to the Yacktman Fund, though their are certainly some minor variations. Considering the name, it's not exactly surprisingly that the fund is somewhat more concentrated.

Yacktman Focused Fund Top 10 Positions (as of 12/31/12)
Procter & Gamble
News Corp.
Pepsi, Inc.
Cisco
Sysco
Microsoft
C.R. Bard
Stryker
Clorox Company (CLX)
Johnson & Johnson (JNJ)

In fact, both portfolios are rather concentrated with the top ten making up 51% in the Yacktman Fund and 59% in the Yacktman Focused Fund.

Both funds have very low turnover by almost any standard. If nothing else that means what is owned now is likely to be in the portfolio for quite a while. Consumer stocks -- both "defensive and "cyclical" -- make up more than half of these two portfolios (with a strong tilt toward so-called "defensive"...35-40%).

The performance of these funds can be found here and at Morningstar.com.

Yacktman Fund Update

The biggest recent addition (and an entirely new position) in the fund is Dell (DELL) but is no where near a top 10 position. The stock still makes up less than 1% of the fund based upon available information. Considering where Dell was selling during the fourth quarter, that likely means -- unless the current attempts to take Dell private fail -- it will end up resulting in a nice gain but not a long-term investment.

Increases to the size of positions that were already held by Yacktman include: Stryker, Coca-Cola, and Avon Products (AVP).

Reduced positions include: H&R Block (HRB) and Research in Motion (RIMM)

Positions that were sold entirely: Liberty Ventures (LVNTA)

With Dell being the biggest change, clearly none of these moves had a huge impact on the portfolio.

Here's a new interview with Donald Yacktman in Barron's.

In the interview, Yacktman says their focus is to first protect client money, then make them money, and ultimately beat the S&P 500 over the long haul.

He also explains why Dell was to the portfolio and why they don't see Apple (AAPL) as an attractive investment (basically...the phone biz is too unpredictable). One key difference in their approach compared to many other funds these days seems to come down to time horizon. In the interview, Yacktman points out that volatility does encourage and lead to more short-term trading but...

"...short-term traders tend not to do very well over time. Most people think in terms of 10 minutes, 10 hours, 10 days, 10 weeks,10 months, but not 10 years. Most people just don't have the patience."

The difference in time horizon shows up in their 2-3% portfolio turnover. It's an approach clearly focused on long run risk-adjusted forward returns instead of chasing near-term price action.
(As the Barron's article points out, Yacktman doesn't mind at all being the "tortoise" among the many active "hares" in the market.)

The merits of their style seems unlikely to be obvious up in a bullish environment, even if extended. That's partly what inevitably tempts too many participants to trade. Yet, if their long run results are any indication, Yacktman and his team is doing something right.

Adam

Long positions in PG, PEP, CSCO, MSFT, KO, DELL, and AAPL established below recent prices and, in some cases, at much lower prices.
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