The Partners III Opportunity Fund's Institutional Class returned +5.98% in the fourth quarter, compared to +12.07% for the Russell 3000. For the calendar year, the Fund's Institutional Class returned +17.32%, compared to +25.96% for the Russell 3000.
Strong performance across risk assets during the fourth quarter put an exclamation point on an already good year. Indeed, Fed Chairman Jerome Powell's dovish remarks in late October reinforced expectations of easier financial conditions in 2024, providing fresh fuel for the “everything rally” in risk assets.
Portfolio gains were broad-based in both the quarter and annual timeframes. Top contributors for the year were Meta Platforms, Inc. (META, Financial), Amazon.com, Inc. (AMZN, Financial), Alphabet, Inc. (GOOG, Financial), Microsoft Corp. (MSFT, Financial), and Berkshire Hathaway, Inc (BRK.B, Financial). Meta Platforms shares were the standout performer, as its “year of efficiency” (an initiative to cut costs and create a leaner organization) and renewed operating momentum drove a near tripling of its stock price. Amazon, Meta Platforms, and Microsoft also landed spots on the list of quarterly contributors, joined by Visa, Inc. (V, Financial) and Liberty Media Corp.-Liberty SiriusXM (LSXMK, Financial). Capping off a busy year, in December Liberty SiriusXM announced a transaction that will eliminate its tracking stock structure, leaving all shareholders with direct ownership in SiriusXM Holdings, Inc. (SIRI, Financial). Closing next year, the transaction should (finally!) help Liberty investors monetize a portion of the discount on their underlying SiriusXM shares.
The Fund's top detractors in 2023 were CoreCard Corp. (CCRD, Financial), Perimeter Solutions SA (PRM, Financial) and The Charles Schwab Corporation (SCHW, Financial) (sold during the first quarter in the wake of regional bank stresses). CoreCard processes payments for Goldman Sachs Group, Inc.'s (GS, Financial) consumer credit card businesses, including its Apple Card partnership. Well-reported strains in the Goldman-Apple partnership (unrelated to CoreCard's performance) have led to speculation that their relationship may soon be terminated. If so, moving the Apple Card to a new partner will take quite some time, giving CoreCard's entrepreneurial management team the opportunity to plan for what comes next. Perimeter is the leading provider of fire retardants and firefighting foam used to combat wildfires. While positive news for residents, acres burned in Perimeter's markets (particularly California) were significantly below average for the second year in a row, diminishing cash flow and obscuring the company's earnings power compared to a more typical year.
Liberty Broadband Corp. (LBRDA, Financial), a holding company owning 31% of Charter Communications, Inc. (CHTR, Financial), joins CoreCard as a top detractor for the quarter. Shares slumped as Charter's CFO commented at a recent conference that competition for new broadband subscribers remains elevated. Although most investors are singularly focused on current subscriber trends, we believe longer-term growth opportunities from the company's footprint expansion and wireless businesses remain intact. Given the broad strength of equities, the Fund's modest short of an SPDR S&P 500 ETF (SPY) drove negative returns for the quarter and calendar year.
Strength across the portfolio tilted activity toward sales, including trims to Alphabet, Amazon, CoStar Group, Inc. (CSGP, Financial), Fidelity National Information Services, Inc. (FIS, Financial), Markel Group, Inc. (MKL), Meta Platforms, Roper Technologies, Inc. (ROP), Visa, Inc. (V, Financial), and the Qurate Retail, Inc. preferred shares (QRTEP). These were partially offset by opportunistic additions to CarMax, Inc. (KMX) and Liberty Broadband Corp. (LBRDA, Financial), as well as the initiating of one new position – Global Payments, Inc. (GPN). Global Payments is a leading provider of payments acceptance services, including roughly four million merchant locations around the world. The payments landscape has grown crowded in recent years with new entrants promising disruptive change. To be sure, the payments industry is competitive, but we believe Global Payments is more durable than other investors fear. As a result, its shares trade at a compelling valuation.
At quarter-end, our gross long position was 95%, up modestly from 92% at the end of September. Our short position was down slightly to roughly 4% of gross assets, resulting in a net long position of approximately 90%.
In each of the past two years, we've been reminded that emotions can drive stock prices in the short term. In 2022, the Federal Reserve's aggressive monetary policy tightening regime to fight inflation, along with near-unanimous recession expectations and geopolitical tensions, left investors fearful and wrestling with a bear market. In 2023, markets soared as a resilient U.S. economy defied those recession calls, and more cooperative inflation readings have the Fed poised for a policy pivot toward cutting interest rates in 2024.
Over the long run, however, we believe what ultimately drives stock prices are companies' operating results and the progression of business value. To be sure, paying attention to which way the macro-economic winds are blowing can be useful. But unfortunately, investors too often become distracted by these perceived headwinds or tailwinds – and stock prices get knocked off their business value course. The coming year has plenty of potentially distracting elements, not least among them a high-stakes U.S. election cycle. Come what may, valuation remains our North Star, and we believe our collection of financially strong, high-quality businesses puts us in a position to earn healthy, risk-adjusted returns.
The opinions expressed are those of Weitz Investment Management and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through 01/20/2024, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor's specific objectives, financial needs, risk tolerance and time horizon.
Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Please visit weitzinvestments.com for the most recent month-end performance.
