Tweedy Browne Fund commentary for the fourth quarter ended December 31, 2015.
The Tweedy Browne Funds produced modestly positive returns in the 4th quarter of 2015, capping off what was in general a rather difficult year for value investors. Each Fund’s cash reserves, low weightings in Japan and the U.S., oil & gas component, and overall value exposure weighed on relative returns. The spread between the value and growth components of the benchmark indices widened considerably in favor of growth during the year. In fact, the so called “FANG” stocks (Facebook, Amazon, Netflix, and Google), which, in our view, trade at exorbitant multiples of earnings power, accounted for about half the return of the MSCI World Index when measured in local currencies. While this kind of divergence is not at all uncommon in the later stages of a bull market as equity valuations become untethered from underlying intrinsic value, it’s hard to recall a previous period when the so called “smart money” seemed so dumb.
It is not surprising, as market volatility increased in the second half of the year, that the food, beverage, and tobacco component of our Fund portfolios produced the strongest returns. This included strong results for the quarter in Unilever, Philip Morris International, and Heineken, with the latter’s strength largely related to the derivative impact of the proposed InBev/SAB Miller deal on beer company valuations. The healthcare segment of the portfolio also stood out, with solid results in Baxalta, the spinoff from Baxter, which announced shortly after quarter end that it would be acquired by Shire at a substantial premium. Its former parent, Baxter International, Johnson & Johnson, GlaxoSmithKline, and Roche also produced very nice returns during the quarter. We also had very solid returns in several of our insurance holdings including SCOR, Zurich Insurance Group and Munich Re.
Tweedy Browne Fund's portfolio sees negative results from the energy sector
While most of the stocks in our Fund portfolios finished up nicely for the quarter, the markets weren’t as generous for some, including the energy related segment (Devon, Halliburton, ConocoPhillips, Cenovus, and Royal Dutch). We also experienced negative results in a couple of our industrial holdings including Safran and G4S; poor returns in two of our Asian related bank holdings, Standard Chartered and Bangkok Bank; and a disappointing stock price result in Antofagasta, our Chilean copper mining holding.
Stock prices recovered significantly during the quarter from the enhanced volatility of late summer associated with the devaluation of the yuan, declining oil prices, and the prospects for rising interest rates in the U.S. While the market volatility did allow us to reduce our cash levels somewhat, primarily through additions to pre-existing positions, the correction in August and early September was simply neither deep nor long enough to allow us to put significant amounts of cash to work.
With markets regaining some of their momentum from earlier in the year, we did more selling and trimming during the quarter than adding and buying, although overall activity in the Funds was pretty light. Standard Chartered, the UK based, but largely emerging market oriented bank, which to date has been a disappointment in terms of its price performance, decided to eliminate its dividend and initiate a rights offering during the quarter. We decided to sell our rights, rather than exercise them, feeling that we were comfortable with the position we already had in the stock. Shortly after quarter end, European Union regulators unconditionally approved FedEx Corp.’s acquisition of the Dutch parcel company, TNT Express. While we had sold part of our position earlier in the year due to concerns about intense regulatory scrutiny of the transaction, we still hold shares of TNT Express in the Global Value Fund and in Global Value Fund II – Currency Unhedged.
As we write, global equity markets are once again in turmoil. With equity valuations at high levels, the prospects for economic growth around the globe appearing quite modest, and increasing geopolitical tensions, the volatility experienced late last summer could very possibly be with us for some time. If that indeed becomes the case, our Funds should be in a position to take meaningful advantage in the weeks and months ahead.
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
Re-opening of Tweedy Browne Global Value Fund II
The Tweedy Browne Global Value Fund II – Currency Unhedged will reopen to new investors on February 1, 2016. As you will recall, the Fund was closed to new investors back in August of 2014, as it had become difficult to invest new subscriptions in the face of rising equity valuations. More recently, flows have become more manageable, and we now believe that the addition of new assets can be managed effectively, without risk of diluting returns to existing shareholders. This is especially true given the enhanced volatility in global equity markets of late which has begun to stimulate new idea flow.
We will continue to impose for the time being a maximum purchase amount of $4,000,000 per investor on any single trade day to prevent large trades that could be disruptive to effective portfolio management.
Tweedy Browne Global Value Fund
Quarterly Equity Performance Attribution
Factors with the largest impact on portfolio return, on an absolute basis, and measured in local currencies.
- Pharmaceuticals, insurance, beverages, internet software, and machinery companies were among the leading industries while the Fund's aerospace & defense, automobiles, banks, mining, and energy equipment companies underperformed.
- Performance by region was largely mixed. Top countries included the Netherlands, the U.S., Germany, Britain, Switzerland, and France. Holdings from Korea, Chile, Thailand, and Canada declined during the quarter.
- Top contributing holdings included Heineken, GlaxoSmithKline, Henkel, Roche, TNT Express, and SCOR. Declining stocks included Standard Chartered, Hyundai Motor, Safran, Devon, Novartis, and Antofagasta.
Tweedy Browne Global Value Fund II - Currency Unhedged
Quarterly Equity Performance Attribution
Factors with the largest impact on portfolio return, on an absolute basis, and measured in local currencies.
- Insurance, pharmaceuticals, air freight, machinery, and food companies were among the leading industries while the Fund's media, automobiles, mining, energy equipment, and banks underperformed.
- Performance by region was largely mixed. Top countries included the Netherlands, Germany, the U.S., France and Switzerland, while holdings from Korea, Chile, Thailand, Canada, and Britain declined during the quarter.
- Top contributing holdings included TNT Express, Johnson & Johnson, SCOR, Roche, Unilever, and Teleperformance. Declining stocks included Standard Chartered, Pearson, Hyundai Motor, Safran, Novartis, and Antofagasta.
Tweedy Browne Value Fund
Quarterly Equity Performance Attribution
Factors with the largest impact on portfolio return, on an absolute basis, and measured in local currencies.
- Pharmaceuticals, beverages, insurance, internet software, and household products companies were among the leading industries while the Fund's electrical equipment, oil & gas, automobiles, mining, and energy equipment companies underperformed.
- Performance by region was largely mixed. Top countries included the U.S., the Netherlands, Germany, Switzerland, and France. Holdings from Korea, Chile, and Britain declined during the quarter.
- Top contributing holdings included Heineken, Johnson & Johnson, Wells Fargo, Roche, Henkel, and Baxalta. Declining stocks included Devon Energy, Standard Chartered, Hyundai Motor, Novartis, Antofagasta, and Haliburton.
Tweedy Browne Worldwide High Dividend Yield Value Fund
Quarterly Equity Performance Attribution
Factors with the largest impact on portfolio return, on an absolute basis, and measured in local currencies.
- Pharmaceuticals, insurance, industrial conglomerates, tobacco, and telecom companies were among the leading industries while the Fund's commercial services companies underperformed.
- Performance by region was largely mixed. Top countries included the U.S., Germany, France, Switzerland, and Britain. Holdings from Thailand declined during the quarter.
- Top contributing holdings included Johnson & Johnson, Siemens, GlaxoSmithKline, Roche, SCOR, and Verizon. Declining stocks were limited to Standard Chartered, Novartis, G4S, ConocoPhillips, Bangkok Bank, and CNP Assurances.
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