COMMENTARY
The bull market in global equities continued to modestly grind ahead in the 2nd quarter, shrugging off concerns about elevated valuations and buoyed by continued enthusiasm about “all things” AI-related and better news on the inflation front. Nonetheless, it was a rather narrow advance, with five tech darlings in the U.S. continuing to account for a significant part of the overall global market return. International developed markets did not fare quite as well, producing only a marginally positive return in local currency for the quarter.
In this ongoing, risk-on environment, which experience would suggest rarely inures to the benefit of price-sensitive investors, the Tweedy, Browne Funds produced relatively flat returns of between -0.91% and 0.49% for the quarter. Both the hedged and unhedged International Value Funds were able to best their benchmarks. For the six months ending June 30, the Tweedy Funds produced solidly positive absolute total returns of between 3.24% and 5.74%.
PORTFOLIO ATTRIBUTION
Please note that the individual companies discussed herein were held in one or more of the Funds during the quarter ended June 30, 2024, but were not necessarily held in all four of the Funds. Please refer to each Fund's portfolio page, beginning on page 4, for selected purchase and sale information during the quarter and the notes on page 13 for each Fund's respective holdings in each of these companies as of June 30, 2024.
The Tweedy Funds earned strong returns during the quarter from several holdings that had disappointed in prior months. The Funds' communication services holdings, particularly interactive media stocks, led returns overall for all but the Worldwide High Dividend Yield Fund, which did not own these stocks during the quarter. Health care providers & services, chemicals, banks, and pharmaceuticals holdings were robust contributors for all four Funds. Alphabet (GOOG, Financial) and Tencent (HKSE:00700, Financial) offered strong returns during the quarter, as did biotech holdings Ionis Pharmaceuticals (IONS, Financial) and Vertex (VRTX, Financial); German dialysis equipment manufacturer Fresenius (XTER:FRE, Financial); Japanese healthcare equipment supplier, Nihon Kohden (TSE:6849, Financial); and long-term pharma holdings Novartis (NVS, Financial) and Roche (XSWX:ROG, Financial). Strong returns in the chemicals group came from Kemira (OHEL:KEMIRA, Financial), Kuraray (TSE:3405, Financial), and Mitsubishi Gas (TSE:4182O, while returns from Singaporean holdings DBS Group (SGX:D05) and United Overseas Bank (SGX:U11), Philippine-based China Banking Corp (PHS:CBC), and US-based Bank of America (BAC) and Wells Fargo (WFC) propped up the banks. Teleperformance (XPAR:TEP) and Ubisoft (XPAR:UBI), two significant detractors from the Funds' first quarter results, reversed course from a stock price standpoint and offered meaningful performance contributions this quarter.
Our two currency-hedged funds, the International Value and Value Funds, were marginally protected from return dilution caused by weaker foreign currencies relative to the US dollar. Our two unhedged Funds, International Value II and Worldwide High Dividend Yield Value Fund experienced some performance dilution resulting from the same relative dollar strength.
The Funds' beverage holdings, aerospace & defense, gas utilities, insurance, and machinery stocks were among the biggest performance laggards during the quarter. Mexican Coke bottler, Coca-Cola FEMSA (KOF), and spirits companies Diageo (DEO) and Wuliangye Yibin (SZSE:000858) had double-digit stock price declines, though, in our view, all three remain attractive from a valuation standpoint. Aircraft equipment and servicing company Safran (XPAR:SAF), a successful long-term Fund holding, was down modestly, as was Rheinmetall (XTER:RHM), a German industrial conglomerate with a significant defense business. French gas utility company Rubis (XPAR:RUI) suffered a decline along with machinery companies Aalberts (XAMS:AALB), CNH Industrial (CNH), Hosokawa Micron TSE:6277), Sumitomo Heavy (TSE:6302), and Shanghai Mechanical (SHSE:600835). The Funds' financial holdings were down slightly overall, though a poor stock market showing from SCOR led insurance holdings lower.
(A list of selected newly established positions, including additions, sales, and trims of existing positions for each Fund, is included with each Fund's portfolio page, beginning on page 4.)
We added a handful of new names to the Funds during the quarter amid modest global price variances, which provided us with attractive entry points relative to our conservative estimates of intrinsic value. Among other purchases, we began buying shares in Wuliangye Yibin, a manufacturer and marketer of self-branded liquors sold primarily in its home country, China. We also initiated a position in Dentium (XKRX:145720), a South Korean manufacturer of dental instruments and materials sold primarily in Korea and China, with meaningful sales in Europe and other parts of Asia. Both of these purchases were made in all funds except the Worldwide High Dividend Yield Fund. Most of our buying activity in the Funds during the quarter was in existing holdings, including Roche, Samsung (XKRX:005930), and relative newcomer Envista (NVST).
On the sell side, we sold or pared back several Fund holdings whose stock prices had either reached our estimates of their intrinsic values or had been compromised in some way by declines in our estimates of intrinsic values or future growth prospects. In some instances, we sold or trimmed some positions to make room for new additions or to generate losses, which we can use to offset the Funds' realized gains.
PORTFOLIO POSITIONING AND OUTLOOK
We continue to believe that the Tweedy, Browne Funds remain well positioned whether the markets continue to power forward or have a comeuppance. Small and mid-capitalization equities continue to represent an increasing component of our Fund portfolios, and trade at or around what we think are historically low valuations when compared to their larger capitalization counterparts. If the past is indeed prologue, that should be a favorable precursor for future relative long-term returns. The Funds, while well diversified, also continue to be heavily weighted to the industrial and financial segments of global equity markets, which, in our view, have represented solid value in an environment of escalating equity valuations. Regarding our geographic and country allocations, we are driven by where we believe value shows up. As a result, our portfolios continue to be heavily weighted in European equities, and we have been increasing our allocations to Japan. In what we believe has been a relatively strong opportunity set for uncovering value, particularly in smaller and medium capitalization companies, cash remains low, ranging from 2% to 4% across all four of our funds.
While market pundits continue to suggest a goldilocks environment for global equities in the near term and believe the bull market has further to run, our view, always driven first and foremost by valuation, remains somewhat more apprehensive. With many equity markets hitting all-time highs, inflation and interest rates remaining stubbornly above target, public and private debt levels precariously high, and the world engulphed to a significant degree in conflict, it is not a time to be complacent when allocating one's investment capital.
Thank you for investing with us.
Roger R. de Bree, Andrew Ewert, Frank H. Hawrylak, Jay Hill, Thomas H. Shrager, John D. Spears, Robert Q. Wyckoff, Jr.
Investment Committee *
Tweedy, Browne Company LLC
July 2024
* Each member of the Investment Committee is a current investor in one or more of the Funds.
The performance data shown above represents past performance and is not a guarantee of future results. Investment return and 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. Current performance may be higher or lower than the performance data quoted. Please visit www.tweedy.com to obtain performance data which is current to the most recent month end.
