Westport Funds Scores Big On MasterCard And FedExVW Staff
Portfolio Review The return for the Westport Fund’s R shares (WPFRX) for 2013 was 28.54% versus 34.76% for the Russell Midcap® Index. The Fed’s third round of quantitative easing initiated in September 2012 made risk more attractive and drove 2013 equity market results. The effect of QE3**** on investment style and risk was most pronounced in the first quarter of 2013 and accounted for nearly all of the full year performance shortfall of the Westport Fund relative to the Russell Midcap® Index. In the final three quarters of 2013 the return from the Westport Fund Class R shares was 19.01%, similar to the 19.32% for the benchmark Index.
To isolate the effects of industry differences on an equity index, the index is often classified into ten industry sectors. From this perspective, the Westport Fund’s differential relative to the Russell Midcap® Index was in the Consumer Discretionary and Services sector with one-third of the shortfall the result of underweighting this sector in the portfolio and the remaining two-thirds attributable to underperformance of the Westport Fund’s holdings in this sector relative to those in the Russell Midcap Index. For a considerable period of time there has been an insufficient number of companies in this sector with the desired combined characteristics of undervaluation and a measure of competitive insulation that would warrant their addition to the Westport Fund’s portfolio.
The 45 portfolio holdings that were present in the portfolio for the entire year provided consistent results with only three recording negative returns. Of the remaining 42 holdings with positive returns, 23 realized a return greater than the Russell Midcap® Index and 19 positions realized a return less than the Index. Losing positions in 2013 cost 146 basis points****. The two largest negative contributions were a loss of 64 basis points from Teradata Corp. (data warehousing and analytics) and 45 basis points from American Eagle Outfitters, Inc. (teenage apparel). The largest positive contributor to portfolio performance was MasterCard, Inc., Class A shares (global payment solutions) at 186 basis points, followed by Precision Castparts Corp. (manufacturer of complex metal components), at 179 basis points. The third largest contributor was Universal Health Services, Inc., Class B shares (acute care hospitals and behavioral health centers), at 176 points. There were eight other portfolio holdings that contributed more than 100 basis points to the Fund’s performance in 2013 – Pall Corp. (filtration technologies), FedEx Corp. (integrated global freight network), FMC Corp. (agricultural chemicals and other specialty products), EOG Resources, Inc. (oil and natural gas exploration), Interpublic Group of Companies, Inc. (global advertising agencies), Checkpoint Software Technologies Ltd. (security software), PTC Inc. (product life cycle management software) and FEI Company (electron microscopes).
During the fourth quarter, shares of Rockwell Collins, Inc. (COL) were added to the portfolio based on the positive outlook for an information management service business that will be constructed from the product offerings of the company and new services made available through the recent purchase of ARINC Inc. During the year positions in Dr. Pepper Snapple Group, Inc., Chicago Bridge & Iron Company N.V., Cullen/Frost Bankers, Inc. and Texas Instruments, Inc. were sold from the portfolio, primarily based on better future expected returns in other positions. The purchase of Lender Processing Services, Inc. by its former parent, Fidelity National Financial, Inc., was completed at the start of this year.
The Westport Fund Class R share’s average annual return has outperformed that of the Russell Midcap® Index by nearly 200 basis points for the 16 years since its inception, 11.26% versus 9.27%, respectively. The Fund’s average annual return also compares favorably to the 6.34% average annual return for the Lipper Multi Cap Core Index, the category in which Lipper places The Westport Fund. The Westport Fund’s focus on the long term and on companies with attributes providing a measure of competitive advantage have been key factors in producing these results.
Investors should consider the investment objectives, risk, and charges and expenses of The Westport Funds carefully before investing; this and other information about the Funds is in the prospectus, or summary prospectus, which can be obtained by calling 1-888-593-78781-888-593-7878 or at our website www.westportfunds.com. Read the prospectus or summary prospectus carefully before you invest.
The views expressed and any forward-looking statements are as of the date of the publication and are those of the portfolio managers and/or the Advisor. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments.
There are special risks associated with small and mid-capitalization issues such as market illiquidity and greater market volatility than larger capitalization issues..
****QE, QE3, or Quantitative Easing means the unconventional monetary policy used by the Federal Reserve Bank to stimulate the economy when standard policy has been ineffective.
****Basis Point is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Portfolio composition is subject to change at any time and should not be considered a recommendation to purchase or sell a particular security. On December 31, 2013, the following securities comprised these respective percentages of the Westport Fund: Teradata Corp. (1.8%), American Eagle Outfitters, Inc. (0.6%), MasterCard, Inc. – Class A shares (4.0%), Precision Castparts Corp. (5.3%), Universal Health Services, Inc. – Class B (3.8%), Pall Corp. (3.4%), FedEx Corp. (2.6%), FMC Corp. (4.2%), EOG Resources, Inc. (4.2%), Interpublic Group of Companies, Inc. (2.5%), Checkpoint Software Technologies Ltd. (3.5%), PTC Inc. (3.4%), FEI Company (2.6%), Rockwell Collins, Inc. (1.1%), ARINC Inc. (0.0%), Dr. Pepper Snapple Group, Inc., (0.0%), Chicago Bridge & Iron Company N.V. (0.0%), Cullen/Frost Bankers, Inc. (0.0%), Texas Instruments, Inc. (0.0%), Lender Processing Services, Inc. (0.3%) and Fidelity National Financial, Inc. (0.0%).