Mason Hawkins is the CEO and founder of Southeastern Asset Management Inc. which owns a suite of mutual funds and UCITS funds under the Longleaf Partners Funds umbrella. Mason Hawkins thinks their “active management results would significantly surpass the market’s passive returns over the next five years.” He thinks that geopolitical events like Brexit and the USA elections present new investment opportunities for the fund.
Southeastern Asset Management’s team thinks that low interest rates and index investing have been dominant market themes in USA over the last few years. This has given a boost to the “perceived as safer” and high dividend yielding stocks. They stressed on the importance of stock picking and mentioned that the fund currently has high percentage of cash holdings because of the difficult trading environment. In their view, Asian stock markets have been affected due to a fear of higher USA interest rates and adverse consequences of Donald Trump’s trade policies but still Asia remains the most attractively valued region globally. In the article below we discuss some of their long ideas such as Alphabet Inc. (NASDAQ:GOOG), Chesapeake Energy Corporation (CHK), and Oci NV (AMS:OCI).
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).
Let’s start with Level3 Communications, Inc. (NYSE:LVLT), in which Southeastern held 28.18 million shares worth $1.31 billion (it’s largest 13F holding at the end of Septemeber. The fund thinks that the potential merger between Centurylink Inc (NYSE:CTL) and Level3 Communications, Inc. (NYSE:LVLT) would result in significant merger synergies as Qwest fibernet gets combined with Level 3’s Communications, Inc. (NYSE:LVLT) fiber network. The new combined entity would be capable of providing competition to the likes of telecom giants such as AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).
The company also has an edge over the large telecom competitors because of its stronger global capabilities. The fund believes that the synergies would lead to a Debt/ EBITDA of less than 4x and an impressive dividend yield of 9%. The deal seems highly “achievable” and Southeastern considers that it could put Level3 Communications, Inc. (NYSE:LVLT)’s value in mid-to-high $70’s per share.