For the three months ending June 30, 2024, the AMG Yacktman Fund (Trades, Portfolio) (Trades, Portfolio) (the “Fund”) Class I shares returned -2.55%, underperforming the Russell 1000® Value Index, which returned -2.17%, and lagging the S&P 500® Index, which returned 4.28%.
Contributors and Detractors
Quarterly contributors include Alphabet (GOOG, Financial) and Microsoft (MSFT, Financial), two members of the small group of AI-centric companies that have been leading the equity market's performance. These companies offer potentially attractive AI exposure if demand for the technology continues at pace and the transformational use cases for AI materialize. Other contributors include Fox Corporation (FOX, Financial) and News Corporation (NWSA, Financial), two media companies that the Fund has held in varying position sizes for many years. Fox announced plans to launch a new sports streaming platform in collaboration with Disney (DIS, Financial) and Warner Bros. Discovery (WBD, Financial) as part of Fox's broader efforts to adapt to the evolving media landscape.
Quarterly detractors include some of Yacktman's highest conviction names: Bollore (XPAR:BOL, Financial), Samsung Electronics (XKRX:005930, Financial) and U-Haul Holding Company (UHAL, Financial). Bollore continues to take steps to unlock value, most recently through Vivendi's announced plans to split into several companies, and list them on exchanges separately so that their fundamental value can be better recognized by investors. Bollore holds a ~30 percent stake in Vivendi, and it stands to benefit as the complexity of the conglomerate is simplified.
Samsung has lagged the share price performance of its technology peers in memory, foundry and phones. In memory, the High Bandwidth Memory (HBM) market has aligned with the AI euphoria, and the HBM players like SK Hynix (XKRX:000660, Financial) have outperformed lately. Memory chips remain a foundational part of the AI ecosystem, and Samsung will benefit from both the Dynamic Random Access Memory (DRAM) and HBM chip demand going forward. In foundry, Samsung is the number two player after Taiwan Semiconductor (TSM, Financial). Samsung is extremely well positioned in chip production, especially given the geopolitical risks associated with TSMC's headquarters in Taiwan.
Samsung's phone business continues to be strong, but the stock price has not kept up with peers like Apple in the recent cycle of AI news. Samsung is a company with leading positions in critical parts of the technology industry, although the market has not recognized this value as it has with SK Hynix, TSMC and Apple.
Conclusion
We have successfully navigated similar markets in the past. The team at Yacktman that has invested through the dot-com market, the sub-prime market, and other market cycles is the same team managing the portfolio today. We believe that if we remain disciplined and execute well, the results can look much like our historical results in these types of markets.
We believe that several of the investments we own are among the best we have ever had. Several of our portfolio companies are taking meaningful steps to unlock value; but in an environment focused on a small handful of AI names, these investments are not yet getting the attention for the progress and results they are achieving.
We believe that some of the AI-centric winners have been propelled by market enthusiasm far more than fundamentals, and that there is downside risk if these companies disappoint. We are in a spend phase of the cycle, and the ultimate use cases and associated revenue models are untested. There are large inherent risks in the sector that are not being factored into the valuations, and when these risks emerge, the results may fall short of the lofty expectations. We believe that the geopolitical risks are especially acute in the semiconductor industry given the location of some of the foundries.
Yacktman's approach remains focused on achieving strong risk-adjusted returns over full market cycles. To do so, we are considering a broad array of risks, and we see the current environment to be full of them. The continuing shift to passive indices exacerbates the problem. For example, Costco (COST, Financial) is trading at a lofty multiple, possibly in part due to its top 10 spot in the Nasdaq-100 index alongside these top technology performers. We believe strongly that investors should have a manager like Yacktman in their portfolios to complement other holdings.
We are extremely positive about our outlook for the portfolio. We believe strongly in the attractive values of companies we own, and we like the positioning of the portfolio for this environment.
To hear more from the Fund's portfolio managers, financial advisors can visit our website here to listen to Yacktman Asset Management (Trades, Portfolio)'s second quarter update call.
The views expressed represent the opinions of Yacktman Asset Management (Trades, Portfolio) (Trades, Portfolio) LP, as of June 30, 2024, are not intended as a forecast or guarantee of future results, and are subject to change without notice.
Disclosures
Investors should carefully consider the fund's investment objectives, risks, charges, and expenses before investing. For this and other information, please call 800.548.4539 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.
