Southeastern Asset Management: “We Welcome Unpredictability”

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Ross Glotzbach is Head of Research and a principal at Southeastern Asset Management. He serves as a co-manager for Longleaf Partners Small-Cap Fund and has been a research analyst at SAM since joining the company in 2004. He was an investment banking analyst at Stephens, Inc. in Little Rock from 2003 to 2004. He holds an AB degree from Princeton University with a major in Economics and is a Chartered Financial Analyst. Mr. Glotzbach has been a guest lecturer at the University of Memphis, is Chairman of Memphis Grizzlies Preparatory Charter School, and serves on the board of Ballet Memphis.

I spoke with Ross on February 15.

Southeastern Asset Management

In your fourth quarter 2016 shareholder letter, you allowed that the number of on-deck companies, ones not currently owned but that potentially meet your investment criteria, is smaller than usual. In the past, has the number of companies in the on-deck category correlated to future returns?

There’s not been an extremely strong correlation historically except for very intense market moments when it’s obvious that there’s a big, long list of them or when markets are high and there’s barely anything. It has correlated to absolute returns in those cases.

It’s also a quality more than quantity thing. Even though today’s list, for example, is a bit smaller than average, there are a good number of potentially great ones there, and we just need the right price. We’ve prequalified them, and now we’re just patiently waiting. We have bought some companies since quarter end that we will talk about a little later.

Also in the fourth quarter 2016 shareholder letter, you stated that values internationally are superior to what you see in the U.S. market. Did that manifest itself in transactions in the fourth quarter and in the first quarter of this year?

It did. We have been saying this in general for a few years; Asia and Europe are more attractive than the U.S. You saw it in the fourth quarter. We had three new buys in our International Fund. We had STADA, a German drug and consumer products company that has just recently been the subject of some merger and acquisition speculation, so it’s been a good one right off the bat.

We also bought Yum China. Yum Brands was a very big long-term winner for us in our Partners Fund and global accounts for over 15 years. We’ve been watching it closely since we had sold it, and when it split into two companies, the China business was cheaper, and we’re very happy to own that one again.

The other company we added in our international accounts was Ferrovial, which was a big winner for us in the past. It became briefly mispriced last quarter, and we were glad to get to start adding to it again. The Partners and the Small-Cap Funds each had one new addition in the fourth quarter, but there were more opportunities internationally.

Thus far in the first quarter of 2017, we can’t show the world yet, but we’ve found some promising internationally headquartered investments. We continue to search the world, but find more things outside the U.S. than in the U.S.

By Robert Huebscher, read the full article here.

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