The folks at The Tweedy, Browne Fund Inc . are celebrating a rewarding 2009. All four of their mutual funds had a strong finish to calendar year 2009 on both a relative and absolute basis, besting all of their respective benchmarks in the 4th Quarter by a significant margin. The Global Value Fund’s 2009 return of 37.85% was its best yearly result in its 17-year history eclipsing its previous best return in 1999 by over 1200 basis points. The Value Fund and the Worldwide High Dividend Yield Value Fund were no slouches either, producing 2009 returns of 27.60% and 28.18%, respectively. The brand new, unhedged version of the Global Value Fund, the Tweedy, Browne Global Value Fund II-Currency Unhedged, although still in its construction phase, also got off to a terrific start, besting the unhedged benchmark for the quarter.
The firm also suffered na unbearable loss as well as Chris Browne, a long time partner to the firm died in mid-December. Chris was a son of Howard Browne, who was a founding member of the firm.
The firm has just published its 4Q09 commentary and the complete copy can be found here.
The quarterly letter highlighted two individual stocks:
The firm also suffered na unbearable loss as well as Chris Browne, a long time partner to the firm died in mid-December. Chris was a son of Howard Browne, who was a founding member of the firm.
The firm has just published its 4Q09 commentary and the complete copy can be found here.
The quarterly letter highlighted two individual stocks:
Two new stocks were added to the Worldwide High Dividend Yield Value Fund during the quarter: Exelon and BAE Systems. Exelon is an electric utility holding company which generates the bulk of its earnings and cash flow from low-carbon nuclear power generation. As the owner of the nation’s largest nuclear power portfolio, it is the low cost producer of electricity in the wholesale markets in which it operates. This low cost position allows it to earn operating margins substantially higher than other competitors. At initial purchase, it was trading around $48 per share, or approximately 12 times earnings and at roughly a 20% discount to our conservative estimates of its intrinsic value of approximately $60 per share. It has a dividend yield of approximately 4.2%. Exelon also stands to be a beneficiary of any type of climate change regulation or legislation, particularly cap-and-trade since nuclear power generation produces almost no carbon. While we have not included this in our intrinsic value calculation, if this comes to pass, we believe the company could enjoy a substantial increase in volume as the cost of producing electricity for much of the industry will rise considerably.
BAE Systems is one of the largest defense contractors in the world, by revenue, and also has one of the lowest valuations based on enterprise value (“EV”) to earnings before interest and taxes (“EBIT”) among defense industry stocks. Nevertheless, it has a growing Saudi Arabian business and a partnership role on the two largest combat aircraft programs of the next generation: the F-35 Joint Strike Fighter and the Eurofighter Typhoon. It is a classic low expectation stock that we believe should benefit significantly from any kind of positive surprise. At purchase it was trading at approximately 5.5 times 2010 EV/EBIT, and at roughly 8.3 times forward earnings with a net dividend yield of approximately 4.1%. BAE Systems has increased its dividend in 13 of the last 15 years. Compounded annual dividend growth for the last 5 years has been 10.42%.
