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The Yacktman Fund and The Yacktman Focused Fund increased 5.91%
and 4.96% respectively in the first
quarter of 2010 compared to the S&P 500 which appreciated
5.39%. In the last 12 months, returns are
82.91% and 81.19% for The Yacktman Fund and The Yacktman Focused
Fund, far ahead of the S&P 500 s
49.77% increase. For the last 10 years, The Yacktman Fund and
The Yacktman Focused Fund have
increased 257.22% and 257.99% respectively, while the S&P
500 declined 6.35%.
Performance
As of: March 31, 2010
ANNUALIZED SINCE INCEPTION
1-YEAR 3-YEAR 5-YEAR 10-YEAR 7/6/1992 5/1/1997
The Yacktman Fund
(YACKX)82.91% 8.93% 8.49% 13.59% 10.25%
The Yacktman Focused
Fund (YAFFX)81.19% 10.75% 9.45% 13.60% 8.93%
S&P 500 Index 49.77% -4.17% 1.92% -0.65% 8.14% 4.81%
We think The Yacktman Fund and The Yacktman Focused Fund are
well positioned today. Over the last
12 months, we reduced weightings in some positions which
performed exceptionally well like
AmeriCredit, Liberty Interactive, eBay, and Lancaster Colony,
and selectively increased or purchased
securities like PepsiCo, Clorox, Comcast, Johnson & Johnson,
Pfizer, and Procter & Gamble, all of which
significantly lagged the market rally of 2009.
From the Truly Exceptional to the More than Acceptable
At current valuations, we feel confident and expect to produce
solid results over time. As
demonstrated by the list of our top 10 positions below, the most
significant fund holdings are in some ofthe highest quality/most
dominant businesses in the world.
Top 10 Holdings Market Position
PepsiCo #1 Global Snack Chip Company (Frito Lay)
News Corporation #1 Cable News Network/#1 Financial
Newspaper/Leading Television Network
Coca-Cola #1 Global Beverage Company
ConocoPhillips One of Six Supermajor Energy Companies
Viacom #1 Childrens Network/#1 Music Network/#1 Comedy
Network
Clorox #1 Bleach/Charcoal/Water Filtration
Pfizer #1 Pharmaceutical Company
Comcast #1 Pay Television Company
Microsoft #1 Global Software Company
Procter & Gamble* #1 Consumer Goods Company
Johnson & Johnson** Dominant Medical
Device/Pharmaceutical/Consumer Product Company
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Its almost all about the price
Identifying great companies is not especially difficult.
Appraising the future prospects of a business and
paying an appropriate price are far more critical to generating
attractive returns and managing risk than
just picking leaders.
In each fund, six of the top ten positions (News Corp,
Coca-Cola, Microsoft, Viacom, Pfizer, and Comcast)
today trade at price levels below their close at the end of
1999, even though each of the six businesses
has grown its sales and earnings per share (in most cases
substantially) in the last decade-plus. We did
not own any of these six poorly performing stocks in either fund
back in 1999, but have been happy to
purchase and own them in the last few years at much more
attractive prices. We like to buy quality
merchandise when it is in the discount bin.
Portfolio Review
Media
Our significant media positions in News Corp, Viacom, and
Comcast all produced positive results for the
quarter. Both News Corp and Viacom have been star performers for
the funds since we purchased
them in 2008, though they are still attractively valued
today.
In recent months, News Corp released Avatar, the highest
grossing film in history, continued to extend
its dominance in the cable news business, and took steps to make
the Fox Network significantly more
profitable by negotiating a monthly fee from Time Warner Cable.
(The big 4 networks, Fox, CBS, NBC,
and ABC, have largely been free over the air, while most cable
channels receive both a monthly fee from
pay television providers and advertising revenues.) We expect
News Corp will soon negotiate fees from
other cable and satellite providers, enabling the Fox Network to
continue to invest in high quality
programming and generate significantly higher profits.
Coca-Cola
Shares of Coca-Cola declined slightly during the first quarter,
and are attractively priced, especially given
low level of risk we see for the business. Over time, emerging
markets represent a significant
opportunity for growth. In 2009 the volume gains in China,
India, Mexico and Brazil were equivalent tothe total volume of
Coca-Colas sixth largest market, Germany.
We are often asked how we expect to get market-beating returns
owning consumer staple securities like
Coca-Cola. Here is how we look at it. Coca-Cola should earn
approximately $3.40 this year. After
making investments for growth, we expect the company to generate
about $3 per share that it can use
however it chooses. Based on the current share price, this
equates to a free cash yield of approximately
5.5%. Over long periods of time we would expect the company to
grow volume at 3-4% per year and
raise prices by a couple of percentage points annually to nearly
keep up with inflation.
In total, this gets us to a double-digit annual expected rate of
return assuming the shares sell at a similar
multiple of earnings/cash flow compared to today. Given the high
degree of confidence we have aboutthe business, this is a solid
investment opportunity in the current environment.
Some think if an investment idea is well-known and seems obvious
it cant be really good. In 1938,
Fortune Magazine concluded Several times every year, a weighty
and serious investor looks long andwith profound respect at
Coca-Cola's record, but comes regretfully to the conclusion that he
is lookingtoo late. Since that time, Coca-Cola has grown
significantly both domestically and around the world.It was not too
late in 1938, and we believe it is far from that today.
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We look for predictability and quality, and would rather invest
in a potentially lower projected rate of
return if that means improving our risk/reward. Stretching to
try to make a slightly higher return is
never a good idea, and it usually leads to lower returns with
higher risk. We believe our high quality
approach has helped us protect capital far better than other
managers in difficult environments.
Increase in Assets Under Management
At the end of the quarter The Yacktman Fund and The Yacktman
Focused Fund crossed over $2 billionand $1 billion in assets
respectively. The assets in the mutual funds represent the majority
of total
assets managed by Yacktman Asset Management.
Each of the co-portfolio managers has a significant investment
in The Yacktman Focused Fund. We are
confident about our ability to deploy increasing amounts of
capital in the current investment
environment.
Conclusion
Our team will work hard to examine the opportunities ahead. We
appreciate the confidence of our
shareholders and, as always, we will continue to be diligent,
objective, and patient when managing the
funds.
Sincerely,
The Yacktman Team
*Top 10 Position in The Yacktman Fund only
** Top 10 Position in The Yacktman Focused Fund only
The performance data quoted for The Yacktman Funds represents
past performance. Past performance
does not guarantee future results. The investment return and
principal value of an investment will
fluctuate so that the investors shares, when redeemed, may be
worth more or less than their original
cost. The current performance may be higher or lower than the
performance data quoted. The most
recent monthend performance may be obtained by clicking on
Updated Performance at
www.yacktman.com.
An investor should consider the investment objectives, risks and
charges and expenses of the Funds
carefully before investing. The Funds prospectus contains this
and other important information about
the Funds. An investor may obtain a prospectus by also going to
the Yacktman website at
www.yacktman.comand clicking on Prospectus or by calling this
toll free number 1-800-525-8258. The
prospectus should be read carefully before investing.
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