The Partners III Opportunity Fund's Institutional Class returned -2.96% in the second quarter, compared to +3.22% for the Russell 3000. Year-to-date, the Fund's Institutional Class returned +5.01% compared to +13.56% for the Russell 3000.
The largest companies led the way again this quarter, as the six companies valued over $1 trillion (Microsoft Corp. (MSFT, Financial), Apple, Inc. (AAPL, Financial), NVIDIA Corp. (NVDA, Financial), Alphabet, Inc. (GOOG, Financial), Amazon.com, Inc. (AMZN, Financial), and Meta Platforms, Inc. (META, Financial)) collectively delivered more than 100% of the Russell 3000's modestly positive return. In keeping with our multi-cap approach, we own shares in Microsoft, Alphabet, Amazon and Meta, and our returns have been the better for it. That said, for a strategy that proactively invests in businesses of all sizes, it's instructive to take a wider view of the equity market. Using that broader lens, the market appears less sanguine. Quarterly results for the small-cap Russell 2000 Index (-3.28%) and the Russell Midcap Index (-3.35%) were modestly negative and in-line with the Fund's return. The experience of these two indexes is instructive and a reminder of the dominant influence of these mega-cap stocks on the capitalization-weighted Russell 3000.
Alphabet, Amazon, and Meta were among the top contributors to both quarterly and year-to-date results. These companies are at the forefront of developing and deploying artificial intelligence in consumer and business applications. And while AI initiatives have captivated investors' interest, their “traditional” businesses (internet search, enterprise software, data center and IT infrastructure services, social media, etc.) continue to outperform, generating significant cash flow and healthy business value growth. CoreCard Corp. (CCRD, Financial) and Texas Instruments, Inc. (TXN, Financial) also enjoyed strong second-quarter rallies to land spots on the list of top quarterly contributors, while Berkshire Hathaway, Inc. (BRK.B, Financial) and Perimeter Solutions SA (PRM, Financial) completed the year-to-date contributor roster.
Global Payments, Inc. (GPN, Financial) reversed its first-quarter gains, becoming the Fund's top detractor for the quarter and second-leading detractor year-to-date. Investor skepticism remains entrenched despite consistent operational execution. Current results are partially muddied by the moving parts of divestitures and positive synergies from the acquisition of former competitor EVO Payments that have yet to develop, leading many investors to adopt a “wait and see” approach in advance of an expected Investor Day later this year. Liberty Broadband Corp. (LBRDA, Financial) (26% owner of Charter Communications) was the Fund's top year-to-date detractor. Shares of Charter Communications remain in the penalty box as investors wait to see how the mid-May expiration of the federal Affordable Connectivity Program (ACP) impacts subscriber results. We anticipate Charter will retain many, if not most, of its five million ACP customers, but we acknowledge this uncertainty has created an added overhang on the stock price. Beyond this one-time event, we believe the long-term picture for Charter remains intact.
Liberty Media Corp.-Liberty SiriusXM (LSXMK, Financial) (83% owner of Sirius XM Holdings, Inc. (SIRI, Financial)) and CoStar Group, Inc. (CSGP, Financial) were also top detractors for the quarterly and year-to-date periods. SiriusXM's operating results have been lackluster, and the current elevated investment cycle has clouded otherwise healthy cash flows. In the near term, however, we look forward to the closing of Liberty SiriusXM and SiriusXM's merger that will eliminate a complicated ownership structure as well as potential technical overhangs related to the transaction being finalized (expected in the coming quarter). At CoStar, the recently launched residential real estate portal (Homes.com) generated strong initial sales results and drove healthy stock price appreciation in the first quarter. Recent reports, however, suggest the pace of real estate agents buying memberships to their site may have slowed, causing shares to give back prior quarter gains and then some. Progress for this new business vertical will likely continue in fits and starts, but importantly, our investment thesis is principally underwritten by CoStar's existing and dominant commercial real estate and multifamily rental marketplace businesses. From current prices, eventual success at Homes.com represents potential upside optionality.
The second quarter saw an elevated level of portfolio activity, including three new holdings. We re-initiated a position in global insurance broker and benefits provider Aon plc (AON), as dissatisfaction over a recent, highly valued acquisition and the announced retirement of its well-regarded CFO pressured shares. Despite these near-term headwinds, we remain confident in Aon's ongoing leadership team and demonstrated track record of execution. Extended downturns across several of multi-industrial IDEX Corp.'s (IEX) businesses have pressured shares in recent months. At current prices, we believe these earnings headwinds overshadow IDEX's potential, as well as management's demonstrated track record of opportunistic acquisitions. Lastly, we purchased a new position in Old Dominion Freight Line (ODFL), one of the largest providers of “less than truckload” (LTL) trucking services. ODFL has long been regarded as the highest-quality LTL operator by customers, employees/drivers, and owners alike, with the profit margins and balance sheet strength to prove it. Similar to IDEX, we are not attempting to “call the bottom” of the recent downturn in industry freight volumes. Instead, we note ODFL's long track record of successful investing through cycles to better position and grow their logistics network, resulting in better service for customers and market share growth.
In other activity, we reduced our overall exposure to Liberty Media Corp.-Liberty Live (LLYVA), maintaining a small “pair trade” position with our modest short of the underlying Live Nation Entertainment, Inc. (LYV) shares (effectively monetizing the discount between our Liberty shares and their underlying Live Nation holdings). We also executed a second round of “tax-loss harvesting” trading, selling our shares of Charter Communications and repurchasing shares of Liberty Broadband. We shifted exposures within the payments space, trimming shares of Fidelity National Information Services, Inc. (FIS) on strength, while adding to Global Payments on weakness, and we trimmed both Alphabet and Amazon on strength. At quarter-end, our gross long exposure was 94% and our gross short exposure was roughly 5% of gross assets, resulting in a net long position of approximately 89%.
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 07/20/2024, 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.
Investment results reflect applicable fees and expenses and assume all distributions are reinvested but do not reflect the deduction of taxes an investor would pay on distributions or share redemptions. Net and Gross Expense Ratios are as of the Fund's most recent prospectus.
