Tweedy Browne Q3 Commentary: Buys HK Co at 2/3 NCAVVW Staff
While global equity markets were buffeted somewhat in the 3rd quarter by macro events such as the Syrian civil war, budget and debt ceiling issues in the U.S., and ongoing concerns about China's growth, it was not enough to stop the markets' strong upward momentum. All four Tweedy, Browne Funds finished the quarter on a positive note, producing returns between 5.30% and 8.47%, despite carrying cash reserves that ranged from approximately 9.5% to 21.4%.
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The performance data quoted herein represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.tweedy.com to obtain performance data that is current to the most recent month-end.
* The Adviser has contractually agreed to waive its investment advisory fee and/or to reimburse expenses of the Worldwide High Dividend Yield Value Fund and Global Value Fund II — Currency Unhedged to the extent necessary to maintain the total annual Fund operating expenses (excluding fees and expenses from investments in other investment companies, brokerage, interest, taxes and extraordinary expenses) at no more than 1.37%. This arrangement will continue at least through December 31, 2014 for the Global Value Fund II – Currency Unhedged and will terminate on December 31, 2013 for the Worldwide High Dividend Yield Value Fund. In this arrangement, the Worldwide High Dividend Yield Value Fund and Global Value Fund II — Currency Unhedged have each agreed, during the two-year period following any waiver or reimbursement by the Adviser, to repay such amount to the extent that after giving effect to such repayment the Fund's adjusted total annual Fund operating expenses would not exceed 1.37% on an annualized basis. The performance data shown above would be lower had fees and expenses not been waived and/or reimbursed.
§ The Value Fund's performance data shown above would have been lower had certain fees and expenses not been waived from December 8, 1993 through March 31, 1999.
The Funds do not impose any front-end or deferred sales charge. However, the Tweedy, Browne Global Value Fund, Tweedy, Browne Global Value Fund II – Currency Unhedged and Tweedy, Browne Worldwide High Dividend Yield Value Fund impose a 2% redemption fee on redemption proceeds for redemptions or exchanges made within 60 days of purchase. Performance data does not reflect the deduction of the redemption fee, and if reflected, the redemption fee would reduce the performance data quoted for periods of 60 days or less. The expense ratios shown above reflect the inclusion of acquired fund fees and expenses (i.e., the fees and expenses attributable to investing cash balances in money market funds) and may differ from those shown in the Funds' financial statements.
? 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.
Results for the quarter were driven by strong returns in the more economically sensitive components of our Fund portfolios including several of our media holdings, our oil and gas stocks, a couple of our bank stocks, and several of our industrials. This included companies such as Axel Springer, Mediaset España, Total, Halliburton, Banco Santander Brasil, Safran, TNT Express, G4S, Krones, Vallourec, Emerson Electric, Siemens, and Lockheed Martin, among others. In general, our consumer staples holdings, which include our food, beverage and tobacco stocks (Unilever, Arca Continental, Sysco, and British American Tobacco), lagged or produced negative returns, as did a couple of our technology holdings, Google and Cisco.
Portfolio activity was quite modest during the quarter. However, noteworthy new editions to some of our Fund portfolios included two Hong Kong-based companies and Cenovus Energy (CVE), a Canadian oilsands company. One of the Hong Kong-based companies is a real estate conglomerate, which has a strong operating record, is in a net cash position, and at purchase was trading at a one third discount from our conservative estimate of its intrinsic value. After spinning off much of its real estate into two REITS at what we believe were very advantageous prices, it should have the financial flexibility to create additional value should Hong Kong real estate face a downturn. The other Hong Kong-based company is a luxury retailer and a classic Ben Graham net current asset microcap stock, which at purchase was trading at two thirds of its net cash and inventories. We also added Cenovus to the Worldwide High Dividend portfolio during the quarter. This Canadian oilsands operator has a strong production growth profile with low cost in situ oilsands reserves. At purchase, Cenovus was trading at a substantial discount from our estimate of intrinsic value and was paying a dividend yield of 3.2%. We also added to a number of pre-existing positions in our Fund portfolios during the quarter, including Banco Santander Brasil, TNT Express, G4S, and DBS, among others.
On the sell side, we sold our remaining shares in Phillips 66, sold the spin-off from Siemens, Osram Licht, and sold or trimmed several Japanese holdings into the strength of the Japanese market.
Cash reserves in all four of our Funds have been slowly but steadily increasing over the last year as global equity markets gained momentum. As valuations have climbed, risks now appear somewhat higher. Bargain hunting remains challenging, but we have plenty of dry powder should the markets present us with an opportunity.
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.
Tweedy Browne Comments On Cenovus
We also added Cenovus (CVE) to the Worldwide High Dividend portfolio during the quarter. This Canadian oilsands operator has a strong production growth profile with low cost in situ oilsands reserves. At purchase, Cenovus was trading at a substantial discount from our estimate of intrinsic value and was paying a dividend yield of 3.2%.