Quick Take: The managers of Tweedy Browne Global Value Fund (TBGVX) stick to Benjamin Graham’s classic value strategy: buy stocks at large discounts relative to their intrinsic values that have strong business models and carry low debt. With the entire planet as its backdrop, the $3.9-billion fund is free to pick stocks without regard to size or location, although the managers favor the developed markets.
For the three-year period ended March 31, Tweedy Browne Global Value fell an annualized 6.3%, while the average global fund dropped 19.3%. For the five-year period ended March 31, the fund gained an average annualized 0.64%, while the peer group lost 5.0%.
The fund’s management team comprises Christopher H. Browne, John D. Spears, William Browne, Tom Shrager, and Robert Wyckoff. Based on quantitative and qualitative criteria, including risk-adjusted returns and skill in navigating the markets, the team was selected as one of 10 winners of the first annual Standard & Poor’s/BusinessWeek Excellence in Fund Management Awards. Messrs. Wyckoff and Shrager participated in this interview.
The Full Interview:
S&P: How many stocks are currently in your portfolio and where are you finding additions?
WYCKOFF: We currently have 189 holdings. We like to be diversified, and we’ve found many attractive, cheaply-priced international stocks, particularly in Europe. We have been able to take modest positions in an increasing number of companies.
S&P: You select individual stocks on a purely bottom-up basis. However, do you ever have to make top-down, macro-economic decisions based on the economic outlook of specific countries and regions?
WYCKOFF: Macro-economics do not play a significant role in our stock-picking process; however, we adhere to some top-down risk-control measures. For example, we don’t allow any one holding to occupy more than 3% or 4% of total assets, and we don’t want any individual industry to represent more than 20% of assets. In addition, we typically will not allow any one country to account for more than 25% of assets. Aside from these self-imposed constraints, our stock selection process is purely bottom-up.
S&P: What are your largest individual holdings?
WYCKOFF: Our top ten holdings as of March 31: Nestle SA (3.41%); Panamerican Beverages (3.15%); Merck KGaA (3.02%); Pharmacia Corp. (2.82%); Kone Corp. (2.61%); Unilever (2.42%); Novartis AG (2.30%); Trinity Mirror PLC (2.09%); ABN Amro Holding NV (ABN) (2.08%); and CNP Assurances (2.07%).
SHRAGER: These 10 holdings accounted for nearly 26% of the fund’s total assets.
S&P: Where are your largest country allocations?
WYCKOFF: As of March 31: Switzerland, 12.8%; U.S., 11.2%; U. K., 10.9%; Netherlands, 10.6%; Japan, 9.2%; Germany, 7.7%; Mexico, 4.6%; Finland, 4.0%; France, 3.9%; Singapore, 3.8%; Hong Kong, 3.2%; Belgium, 1.5%; and Canada 1.4%.
S&P: You invest primarily in the developed markets. But, given how well the emerging markets have performed the past few years, don’t you feel compelled to look there?
WYCKOFF: Our focus remains the developed markets. Although we currently hold a few stocks in emerging markets, we don’t generally invest there because we like countries that have well-developed legal systems, where foreigners have the same stock-purchase rights as local investors, where the flow of corporate information is adequate, and where we can hedge the currency back to the U.S. dollar.
SHRAGER: These and other criteria disqualify such markets as China and Russia. Although they have performed well in recent years, it must be remembered that these markets are small, often highly illiquid, and usually dominated by one or a handful of large firms. In addition, these companies typically have poor corporate governance. In fact, many Russian companies are owned by crooks.
WYCKOFF: I think most people who invest in the emerging markets are simply trying to participate in projected above-average GDP growth. One exception might be South Korea, which has made great strides in terms of corporate governance and has performed very well.
S&P: As a global fund, you have the latitude to invest in U.S. stocks. How much of an exposure have you typically kept in domestic equities?
WYCKOFF: We have purposefully kept a low exposure in the U.S. When we started the fund, we wanted the flexibility to invest in the U.S. in case valuations overseas became too expensive. However, we have typically kept less than 15% of the fund’s assets in U.S. companies.
One thing to also remember is that some companies, which are based in the U.S., generate most of their business overseas. For example, we own Hollinger International Inc. (HLR), which is Conrad Black’s media publishing empire. Though it’s based in Chicago, it owns newspapers all over the world.
S&P: The euro has just reached a four-year high against the dollar. Has the euro accelerated the pace of corporate activity and restructuring in Europe?
WYCKOFF: No, it hasn’t; but we would attribute that more to the weakness in the global economy the past three years.