The annual year-end commentary from Memphis-based Southeastern Asset Management always provides an instructive look at the economic landscape and a peek at the playbook of an investment firm led by a pair of prominent Memphis businessmen.
Among its results for 2013, the oldest funds Southeastern manages all posted more than double the firm’s return goal of inflation plus 10 percent. The Partners Fund gained 32.1 percent for the year, the Small-Cap Fund was up 30.5 percent and the International Fund gained 28.1 percent.
A newer fund that just finished its first year, the Global Fund, fared similarly well in 2013, gaining 28.4 percent.
Led by chairman and CEO Mason Hawkins and president and chief investment officer Staley Cates, Southeastern’s leadership famously takes the long view toward its investments and in its outlook. Hawkins in the past has been described as a Warren Buffett of the mutual fund world, given his value style of investing.
Wunderlich Securities Inc. CEO Gary Wunderlich said recently that Southeastern is comprised of “some of the smartest people I know in the business. They have a long history of success that I am sure will continue.”
The firm generally doesn’t push for media mentions or talk to the press. Shareholder communications break that silence, though, and Southeastern’s leaders allowed themselves a note of optimism in their year-end letter to shareholders, explaining how they expect the values of the companies they own to grow from here.
“The qualitative strength of the businesses and management partners that drove our 2013 results remains firmly in place and should help us deliver strong relative results going forward as well as meet our absolute return objective over the long term,” Cates and Hawkins wrote. “We believe that the values of our companies will be materially higher in five years. Additionally, we are continually pursuing new opportunities and are prepared to capitalize when qualifiers emerge.”
They go on to note that almost every investment “positively contributed” to performance in 2013 and praised the results of Southeastern gathering strong businesses and partners. Among those positive contributions for the year, new leaders at companies in which Southeastern owns stakes improved their operations and sold non-core assets; and, at others, management focused on the most profitable parts of their businesses while also working to grow revenues and margins.
Regular readers of the Southeastern annual letter also will recognize regular reminders Cates and Hawkins sprinkle throughout, attesting to their patience and disregard of the volatility of the moment.
“Two years ago, when fears about global uncertainty over sovereign debt and economic recession caused stocks to decline significantly in the third quarter, the final paragraph of our year-end letter contained an emphatic message about the opportunity embedded in our portfolios and that we anticipated exceptional returns,” the recent letter reads. “The subsequent two years were outstanding for equity markets in general and for the Longleaf Funds with returns that far exceeded inflation plus 10 percent.”
In listing the factors behind Southeastern’s investment strategy, one thing the letter notes is the firm’s commitment to good governance at companies it invests in and how it will take action when the need arises. That was certainly evident in 2013 when Southeastern made news for unsuccessfully opposing a proposed buyout of Dell Inc., making a forceful case that the bid undervalued the computer maker.
Southeastern at the time was Dell’s largest outside shareholder, owning a little more than 8 percent of the company.