Tweedy, Browne: Positions In Globally Diversified, Underleveraged Businesses

Morningstar's 2011 International-Stock Fund Manager of the Year was awarded to the team that manages the Tweedy, Browne Global Value Fund (TBGVX). It's their flagship international fund.

The team of managers at Tweedy, Browne tend to be positioned in "larger, more globally diversified, underleveraged businesses" selling "products that are of growing interest to emerging middle classes around the globe."*

The fund has relatively low turnover which is always good to see.

According to Morningstar, the annual turnover of the fund is just 12% so there's a pretty good chance the shares owned at the end of a quarter will be held longer term. Funds with very low turnover like Tweedy, Brown Global Value are more about investing, less about trading.

In contrast, what's owned by a fund with very high turnover at the end of a quarter doesn't mean much. What was owned at the end of the quarter has a decent chance of having been sold or being sold sooner than later. Unfortunately, there are too many funds with very short time horizons when it comes to stocks. These funds are more about trading, less about investing.

Here's the top five holding of the Tweedy, Browne Global Value Fund as of the end of the 4th Quarter 2011:

Top 5 Holdings
1 Philip Morris International (PM)
2 Nestle (NSRGY)
3 Diageo (DEO)
4 Roche (RHHBY)
5 Total (TOT)

The team did trim their position in Diageo somewhat during the quarter. Otherwise, there were no changes among the top five holdings.

Some more excerpts of note from the most recent Tweedy, Browne Quarterly Commentary:

Our fourth quarter results were led by continued strength in consumer staples stocks such as Philip Morris, Diageo, Walmart and Unilever, and a significant uptick in some of our more cyclical holdings including Axel Springer, Total, Royal Dutch, and Union Pacific.

Later in the letter they added...

We continue to maintain significant positions in consumer staples and healthcare stocks, but also have substantial positions in more cyclical areas such as insurance, industrials, energy and media. While the spread in valuation between the more defensive and the more cyclical parts of the equity market has widened of late, the overall valuation for our portfolios remain quite reasonable to attractive with a forward 2012 weighted average price earnings ratio for our Funds' equities, which range between 11.4X and 12.3X estimated earnings.

It's notable that positions in consumer staples make up over 30% of the portfolio. That high percentage allocation is not unlike the low turnover equity portfolios of Berkshire Hathaway (BRKa) and The Yacktman Funds. Many funds have a smaller allocation because they're considered "defensive" investments even though there's plenty of evidence that suggests otherwise.

Both Berkshire and Yacktman have more than 30% of their equity portfolio in consumer staples stocks.

Readers of my many prior posts on consumer staples stocks will know that I generally favor shares of the better ones as core long-term holdings.

Of course, like anything else, the shares need to be purchased at reasonable valuations. Many of them were very reasonable valued not too long ago.

The discounts on most are much smaller now.

Still, when bought well and held longer term the best consumer staples businesses are capable of producing very attractive risk-adjusted returns.


* From the Tweedy, Browne 4th Quarter 2011 Commentary

Established long positions in PM, DEO, TOT, WMT, and UNP at much lower than recent prices
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Tweedy, Browne: Positions In Globally Diversified, Underleveraged Businesses
Tweedy, Browne: Positions In Globally Diversified, Underleveraged Businesses
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