In the first quarter the AMG Yacktman Fund (Trades, Portfolio) (the Fund) returned -1.4%, underperforming the -0.7% return for its primary benchmark, the Russell 1000® Value Index.
In the first quarter of 2022, the AMG Yacktman Fund (Trades, Portfolio) held up well during a period of increased market turbulence. Concerns about the war in Ukraine, high inflation, rising commodity costs, and corporate earnings impacted general market sentiment. The high-priced, speculative securities we avoid seem to have felt the most acute pain. The combination of historically high valuations and a list of growing and seemingly unavoidable headwinds should cause investors to think hard about the assets they own. In a departure from recent history, it is our belief that valuation will prove far more important than indexing or speculation going forward.
Starting in March 2009, it has been an exceptional period in the U.S. market where stock prices have risen dramatically. Much of this increase has been fueled by investors’ willingness to pay higher and higher valuations as cash and fixed income alternatives became less attractive. Corporate profit margins, which have been high for many years, are now more vulnerable due to inflationary pressures. In response, many companies have increased their risk profiles substantially by leveraging up their balance sheet. We have remained steadfast in our focus on risk. As other investors start to pay attention again, we think many of our companies will stand out due to consistent business models, solid balance sheets, and unappreciated hidden value.
Contributors and Detractors
The energy and defensive sectors were strong performers in the first quarter. Our positions in Canadian Natural Resources (CNQ, Financial) and Weatherford International (WFRD, Financial) performed well in the first quarter. Lockheed Martin’s (LMT, Financial) stock added to results, as the war in Ukraine creates a stronger outlook for defense budgets globally. Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) also delivered solid returns in a difficult quarter.
Detractors include Samsung Electronics (Samsung) (XKRX:005935, Financial), Associated British Foods (LSE:ABF, Financial), and Bolloré (XPAR:BOL, Financial). While these securities lagged during the quarter, they are among our favorite holdings. Samsung was generally weaker in the technology sector but remains remarkably inexpensive. While the market can overreact to the cyclical nature of Samsung’s businesses, the company’s balance sheet with more than $100 billion in net cash and investments provides downside protection. ABF operates businesses ranging from food staples like Ovaltine and Twinings Tea to fast fashion retailing in Primark. Like Samsung, ABF has an exceptionally strong balance sheet and owns a set of businesses that should outperform peers in a more challenged environment.
While Bolloré’s shares detracted during the quarter, the company entered into an agreement to sell its African logistics business to MSC Group for €5.7 billion. If the transaction closes, Bolloré offers a cash-rich balance sheet and a much simpler story for investors. We think this combination could result in significant share price appreciation over time.
Conclusion
Yacktman Asset Management (Trades, Portfolio) marks its 30th anniversary this year. In reflecting over three decades, we are proud to have delivered strong risk-adjusted returns for our investors. Since its inception, AMG Yacktman Fund (Trades, Portfolio) has outperformed both the Russell 1000® Value and the S&P 500® Index and has also outperformed as it nears its 30-year mark. Few funds can claim outperformance over multiple decades, and fewer still while also managing risk in the form of less volatility versus peers.
Much of Yacktman’s most significant alpha versus benchmarks occurred during more difficult stock markets (during bear markets and off-market lows). Given the current investment environment, we think that we could be entering a period of increased market volatility. Such an environment should bode well for our securities—grounded in steady business models and cash flow generation—to differentiate themselves rather than a bullish environment that favors stories and speculation.
We want to give a note of thanks to our shareholders who have trusted us with their capital and to all of the team members at Yacktman Asset Management (Trades, Portfolio) who have helped us to execute on behalf of clients for these many years. Although it is important to look back at significant milestones, it is far more important to be focused on the future. Our focus continues and, as always, we will remain objective, diligent, and patient while managing investor capital.
The views expressed represent the opinions of Yacktman Asset Management (Trades, Portfolio) LP, as of March 31, 2022, are not intended as a forecast or guarantee of future results, and are subject to change without notice.
- Returns for periods less than one year are not annualized.
- The performance information shown for periods prior to June 29, 2012, is that of the predecessor to the Fund, The Yacktman Fund (Trades, Portfolio), which was reorganized into the AMG Yacktman Fund (Trades, Portfolio) on June 29, 2012, and was managed by Yacktman Asset Management (Trades, Portfolio) LP with the same investment policies as those of the predecessor Fund.
- Since the inception of the Fund on July 6, 1992.
- Effective June 30, 2020, the Fund’s primary and secondary benchmarks were changed. The Russell 1000® Value Index became the primary benchmark and S&P 500® Index the secondary benchmark; previously the S&P 500 was the primary benchmark and the Russell 1000® Value Index was the secondary benchmark.
- Mention of a specific security should not be considered a recommendation to buy or a solicitation to sell that security. Holdings are subject to change.
Disclosure
Investors should carefully consider the fund’s investment objectives, risks, charges, and expenses before investing. For this and other information, please call 800.835.3879 or download a free prospectus. Read it carefully before investing or sending money.
Past performance is no guarantee of future results.
The Fund is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall.
