Weitz Investment Management Partners Value Fund Q1 2022 Commentary

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The Institutional Class of the Partners Value Fund returned -8.68% for the first quarter, compared to -4.60% for the S&P 500 and -5.28% for the Russell 3000. For the year ended 31 March 2022, the institutional category of the Fund generated a return of +4.35% against +15.65% for the S&P 500 and +11.92% for the Russell 3000.

It has been a difficult and disappointing start to the year for the Fund. The crosswinds we have been discussing over the past few quarters have intensified, to put it mildly. Investors face a ground war in Europe, widespread and persistent inflation, a significant shift in domestic monetary policy from looser to tighter, continued dysfunctional fiscal policy debates in Washington, and more. Uncertainty is high. Given this set of conditions, the stock market has been reasonably resilient.

Companies are generally posting strong financial results, at least so far, and they are adapting fluidly to rapidly changing conditions. Estimates of the value of our business are mostly stable or increasing, with a few notable exceptions. Their stock prices are another story. Seventeen of the Fund’s positions suffered double-digit price declines during the quarter. While Meta Platforms (FB) – formerly Facebook – was the most visible detractor, most markdowns were concentrated in our mid-cap holdings.

When we combine lower stock prices with stable to high trading values, the outlook for future returns improves. Of course, we have to be right about our value estimates, and the macroeconomic risks to earnings are high, of course. Nevertheless, our team believes that the portfolio is trading at a price/value ratio in the 80s, which offers good protection against short-term forecast errors. As valuation-sensitive investors, we like our hand.

Berkshire Hathaway (BRK.A, BRK.B), Markel (MKL), Aon plc (AON), Charles Schwab (SCHW) and Visa (V) were the top quarterly contributors to the Fund. These financial stocks served as life rafts in otherwise choppy market waters.

Meta Platforms, CarMax (KMX), Liberty Broadband (LBRDA), Axalta Coating Systems (AXTA) and LKQ (LKQ) were the Fund’s main quarterly detractors. But the bigger story is the long line of detractors that still impacted quarterly results.

In insurance jargon, frequency was as relevant as severity. The silver lining is that we believe these declines will prove to be temporary rather than permanent.

The Fund’s financial stocks recorded exceptional gains during the year. Berkshire Hathaway, Aon plc, Charles Schwab and Markel joined Alphabet (GOOGL, GOOG) as major contributors. Each posted robust returns on large position sizes, generating strong “slugging percentages” for the portfolio. We reduced our holdings in Schwab and Aon as their shares traded close to our valuation estimates. This activity reflected our valuation discipline of, as the old adage goes, “methodically selling what’s expensive and buying what’s cheap” in order to enhance the Fund’s return potential.

CarMax, Meta Platforms, Liberty Latin America (LILA), CoStar Group (CSGP) and MarketAxess Holdings (MKTX) were the Fund’s main detractors over the year. CarMax, Meta and CoStar are among our most compelling positions, and we added to them during the quarter at attractive prices. Liberty Latin America has a “whippy” (frequently changing direction) stock that is often more volatile than underlying company revenue and margins. And while our value estimate for MarketAxess has dropped significantly, our thesis and the company’s critical role in electronic bond trading for the next decade remains intact.

We added a new position in Gartner (IT) as tech-adjacent stocks continued to fall during the quarter. Gartner is the leading provider of subscription research services for IT and business professionals (think senior executives, among others). The company has an attractive “build once, sell many times” business model that should sound familiar to long-time investors in the Fund. While Gartner isn’t screaming “cheap” on current earnings, we’re drawn to the company’s sustainability, business momentum, and cash flow growth potential.

We believe that investing in companies of all sizes, using our Quality at Discount framework, is a sustainable benefit of a multi-cap strategy. Recent additions of mid-cap companies such as Gartner, AutoZone (AZO), Dun & Bradstreet (DNB), First Republic Bank (FRC), HEICO (HEI), IDEX (IDEX) and MarketAxess align with our collective vision of ‘go anywhere’ stock portfolio. If the volatility of early 2022 continues, we believe that active managers with a broad mandate will have even more opportunities to add value and earn a living.

Valuation remains our North Star and we believe our shares are reasonably priced. Business value growth was solid and generally encouraging. As mentioned, our current estimate is that the portfolio is trading at a price-to-value ratio in the mid-80s, a level that suggests sufficient long-term return potential for our mid- and large-cap holdings.


Main contributors and relative detractors

For the TRIMESTER ending 03/31/2022

TOP CONTRIBUTORS

Come back (%)

Average weight (%)

Contribution (%)

% of net assets

Berkshire Hathaway Inc. Class B (BRK.B)

18.03

6.41

1.06

7.1

Markel Corporation (MKL)

7:55 p.m.

3.71

0.74

4.3

Aon PLC (AON)

8.44

3.60

0.31

3.3

The Charles Schwab Company (SCHW)

0.18

3.22

0.17

2.9

Visa, Inc. (V)

2.52

3.97

0.11

4.1

THE BEST DETRACTORS

Come back (%)

Average weight (%)

Contribution (%)

% of net assets

Meta Platforms, Inc. (FB)

-34.18

3.11

-1.19

3.2

CarMax, Inc. (KMX)

-25.89

3.37

-0.94

3.1

Liberty Broadband Corp. – Class A and C

(LBDRA/K)

-17.10

5:30 p.m.

-0.60

4.3

Axalta Coating Systems Ltd (AXTA)

-25.79

2.60

-0.81

2.3

LKQ Corp. (LKQ)

-24.04

2.94

-0.80

2.6

The holdings are subject to change and may not be representative of the current or future investments of the Fund. Performance contributions are based on actual daily holdings. Returns shown are actual returns for the security’s specified time period. Additional securities referenced here as a percentage of the Fund’s net assets as of 03/31/2022: Alphabet Inc. – Class C (GOOG) 8.2%, AutoZone, Inc. (AZO) 2.2%, CoStar Group, Inc (CSGP) 4.4%, Dun & Bradstreet Holdings, Inc. (DNB) 1.8%, First Republic Bank (FRC) 2.1%, Gartner, Inc. (IT) 1.6%, HEICO Corp. – Class A (HEI) 3.1%, IDEX Corp. (IEX) 1.5%, Liberty Latin America Ltd. – Class C (LILAK) 2.4%, MarketAxess Holdings, Inc. (MKTX) 1.7%.


Average annual total returns (%)

AS OF 03/31/2022

YTD

1 year

3 years

5 years

10 years

Since the creation of the Fund

Creation date

Net expenditure

Gross expenditure

Partners Value Fund – Investor (MUTF:WPVLX)

-8.71

4.13

11.95

8.44

8.77

11:49

06/01/1983*

1.07%

1.07%

Partners Value Fund – Institutional (MUTF: WPVIX)

-8.68

4.35

12.19

8.69

8.96

11.54

07/31/2014

0.89%

0.89%

Russell 3000®

-5.28

11.92

18.22

3:39 p.m.

14.28

11.29

S&P 500®

-4.60

15.65

18.91

15.98

14.62

11.88

*Indicates the inception date of the Fund and the date from which the performance since inception is calculated.


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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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