Tadamichi
Fund characteristics
P/V ratio
low -70%
cash
22.6%
Number of possessions
18
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All data as of September 30, 2024.
Annual total return
3Q
YTD
1 year
3 years
5 years
10 years
Since its founding
(%)
(%)
(%)
(%)
(%)
(%)
(%)
partners fund
10.42
10.27
19.09
3.81
9.43
4.53
9.48
S&P500
5.89
August 22nd
36.35
11.91
15.98
13.38
10.63
Russell 1000 value
9.43
16.68
27.76
9.03
10.69
9.23
9.87
The start date is April 8, 1987.
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Returns reflect reinvested capital gains and dividends, but do not reflect any tax deductions that investors pay on distributions or stock redemptions. Performance data quoted represents historical performance. Past performance does not guarantee future results. The return on investment and the 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. The Fund’s current performance may be lower or higher than its estimated performance.
Performance data to the latest month-end is available by visiting Value Investors 1975 onwards | Southeastern Asset Management. The pre-exempt prospectus expense ratio is 1.05%. The Partners Fund’s expense ratio is eligible for contractual fee waivers only if the fund’s regular operating expenses (excluding interest, taxes, brokerage fees and special expenses) exceed 0.79% of average annual net assets. This agreement is effective until at least April 30, 2025 and may not be terminated prior to that date without approval of the Board of Directors.
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Longleaf Partners Fund returned 10.42% in the third quarter, outperforming the S&P 500 (SP500, SPX) and Russell 1000 Value returns (5.89% and 9.43%, respectively).
More than half of our portfolio holdings achieved double-digit returns, with only a few detractors. It’s encouraging to see the market starting to recognize the value of many of the companies we mentioned in our first two letters this year.
Throughout the year, we reduced or sold several high-performing stocks, increasing our cash position to a higher-than-normal 23% and increasing the portfolio’s margin of safety relative to the index. We own companies with durable competitive advantages and the financial strength to attack opportunistically. We also remain optimistic about the historically wide valuation differential between our holdings and the index. While we have recently seen faint signs of market health emerging, we remain focused on what we can control for the rest of 2024 and beyond.
During the quarter, after 38 years at Southeastern, Vice Chairman and Co-Portfolio Manager Staley Cates announced that she will retire at the end of the year to focus on civic engagement. We are grateful for all Mr. Staley has given to the Southeast and encourage you to read the full notice here.
Return of contributions as of September 30, 2024
3Q top 5
Company Name
total
return (%)
contribution
Return (%)
portfolio
Weight (%)
Keranova (K)
39
2.18
0.0
CNX resources (CNX)
34
1.93
6.5
PayPal (PYPL)
34
1.08
3.9
Bio-Rad (BIO)
twenty three
0.98
4.9
Affiliated Manager Group (AMG)
14
0.89
5.8
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3Q bottom 5
Company Name
total return
(%)
Contribution to returns
(%)
Portfolio weight
(%)
MGM Resorts (MGM)
-12
-0.63
4.3
FedEx (FDX)
-8
-0.52
5.3
PVH (PVH)
-5
-0.19
3.2
Unpublished
-1
-0.06
4.7
Unpublished
0
0.00
2.4
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Kellanova – Packaged food company Kellanova was the quarter’s largest contributor. This company will be acquired by Mars Inc. at a price slightly higher than our valuation. This outcome was one of several potential paths to realizing value when we first invested. The company’s strong portfolio of brands had been undervalued in the market, but the separation of its less-than-attractive cereal business allowed the snack division to play to its strengths. We wanted to own the company longer, but the company performed well this year and ultimately attracted Mars, who offered us a fair price at full price. We exited our position during the quarter due to this price strength.
CNX Resources – Natural gas company CNX Resources also had its best performance in the quarter. The company also delivered another strong quarter, with continued value per share growth. Natural gas prices may rise as fall approaches winter, but that is still outside of our control. CNX’s low cost structure and hedging strategy allows it to provide free cash flow (“FCF”) in a variety of price environments. FCF will continue to focus on increasing share buybacks. If you’d like to learn more about CNX, CEO Nick DeIuliis hosted a podcast this quarter covering a variety of topics.
PayPal – Digital payment platform PayPal contributed this quarter. The company delivered a solid performance, with gross margin increasing 8%, an improvement from the 4% increase seen in the previous quarter. Strong cost management also led to double-digit growth in FCF, an important metric for the company. The company further increased shareholder value by repurchasing nearly 10% of its shares on an annualized basis, further increasing FCF per share growth. Much of what we envisioned during our initial investment is coming to fruition faster than expected, thanks to the improved leadership of our relatively new CEO, Alex Chriss.
MGM Resorts – Hospitality and gaming company MGM Resorts was the biggest detractor during the quarter. On the day the company announced its earnings, its stock price fell 13%. However, there was nothing in this report that changed our long-term investment case. While this industry can experience some quarter-to-quarter volatility, we remain confident in our long-term earnings potential. MGM continues to generate significant FCF and conduct significant share buybacks, further boosting FCF per share. MGM also continues to strengthen its online offerings and rationalize its portfolio with an eye toward the potential sale of additional non-core assets in the future. We continue to have confidence in our management team, led by CEO Bill Hornbuckle.
FedEx – Global logistics company FedEx was among the top performers in the second quarter, but was criticized this quarter. The company reported a difficult quarter, falling short of expectations amid a challenging earnings environment. Some one-time issues, such as the expiration of a U.S. Postal Service contract, also impacted results. Although the anticipated cost savings did not materialize to the extent the market expected, we believe these savings are likely to materialize quickly. As we wrote about last quarter, we are also awaiting final decisions on a potential spinoff of our FedEx Freight business. The market has consistently underestimated FedEx’s sub-truckload business. A spinoff or sale could create significant value, as peers such as Old Dominion and Saia currently trade at higher multiples of earnings and cash flow than are reflected in the market and FedEx Freight’s valuation. There is sex.
Portfolio activities
We exited two positions in the quarter: Keranova and Fiserv (FI). Keranova, as explained above, was sold on price strength following the Mars acquisition announcement. Fiserv was traded at our valuation and then sold. We are partnering with an excellent management team that is active in managing and proactively leverages well-timed stock repurchases to further increase FCF per share while maintaining appropriate levels of leverage. I was lucky to have it. We have added two new positions to our portfolio. One is a globally focused company led by strong owner-managers that we know well. The second is a unique opportunity in the historically lucrative defense industry. We look forward to sharing more detailed information about both companies in the future.
outlook
Our owned businesses made solid progress this quarter, and the market has started to reflect this in the stock price. With the fund’s price-to-earnings ratio still in the low 70s, we think there is considerable room for further price appreciation. Although our cash position ended the quarter higher than normal, we are preparing several investments that could quickly return our cash balance to lower levels. We continue to believe that our portfolio is well positioned to deliver strong absolute returns and relative outperformance in a variety of market environments. Thank you for your continued trust and investment.
In addition, we recently began the search for our next North American Junior Analyst, as Will Allen continues to grow and is expected to be promoted to Analyst next year. We always value the input of our partners, who are one of the most important groups within our extensive global network, and welcome nominations for this position. If you would like a copy of the job description, click here and send your introduction to jobs@seasset.com.
Before investing in Longleaf Partners Fund, you should carefully consider the Fund’s investment objectives, risks, charges, and expenses. Please see Longleaf Partners Fund for a current prospectus and summary prospectus containing this and other important information. Please read the prospectus and summary prospectus carefully before investing.
risk
The Longleaf Partners Fund is subject to stock market risk, and the shares within the fund may fluctuate in response to developments in individual companies or due to general market and economic conditions. Additionally, because the Fund typically invests in 15 to 25 companies, stock prices may be more volatile than if it held a larger number of securities. Mid-cap stocks held by the Fund may be more volatile than those of larger companies.
The S&P 500 Index is an index of 500 stocks selected based on factors such as market size, liquidity, and industry group. The S&P is designed to be a leading indicator of U.S. stocks and is intended to reflect the risk/return characteristics of the large-cap universe. The constituents of the S&P 500 Value Index are drawn from the S&P 500 and are based on three factors: book value, earnings, and price-to-sales ratio. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and cannot be invested in directly.
The Russell 1000 Index measures the performance of the 1,000 largest companies from the Russell 3000 Index. This represents approximately 90% of the market capitalization of the Russell 3000 Index. The Russell 1000 Value index is drawn from constituents of the Russell 1000 based on book-to-book ratio (B/P). Indexes are unmanaged, do not reflect the deduction of fees or expenses, and cannot be invested in directly.
P/V (“Price to Value”) is a calculation that compares the price of the stocks in a portfolio to Southeastern’s valuation of their intrinsic value. This ratio represents a single data point for the Fund and should not be construed as anything more than that. Investors are cautioned not to place too much weight on this calculation, as P/V does not guarantee future results.
“Margin of Safety” refers to the difference between the stock’s market price and Southeastern’s calculated valuation. It does not guarantee investment results or profits.
Free cash flow (“FCF”) is a measure of a company’s ability to generate the cash flow necessary to sustain its operations. It is generally calculated as operating cash flow minus capital expenditures.
Price/Earnings (PER) is the ratio of a company’s stock price to its earnings per share.
Gross domestic product (GDP) is the final value of goods and services produced within a country’s geographic boundaries within a specified period of time.
As of September 30, 2024, Longleaf Partners Fund’s top 10 holdings are: CNX Resources, 6.5%. Associated Managers Group, 5.8%. Fidelity National Information Services, 5.7%; IAC, 5.3%. FedEx, 5.3%; Mattel, 5.3%. Bio-Rad, 4.9%. Undisclosed, 4.7%. MGM Resorts, 4.3%, Live Nation, 4.2%.
A Fund’s holdings are subject to change, and discussion of holdings is not a recommendation to buy or sell any security. Current and future holdings involve risks.
Funds distributed by ALPS Distributors, Inc. LLP001543
Expiration date is January 31, 2025
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original post
Editor’s note: The summary bullet points in this article were selected by Seeking Alpha editors.
