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Tweedy, Browne Company LLC’s Q2 2019 Investor Report

Tweedy, Browne Company LLC, a Connecticut-based investment management firm established in 1920, manages the Tweedy, Browne Fund Inc. It recently released its Q2 2019 Investor Letter – a copy of which can be downloaded below. The firm is led by four managing directors – William H. Browne, Thomas H. Shrager, John D. Spears, and Robert Q. Wyckoff, Jr.

Browne has been with the firm since 1978 and is a member of the Management and the Investment Committees. He is the Director and Vice President of Tweedy, Browne Fund Inc. He holds a bachelor’s degree from Colgate University and a master’s degree from Trinity College.

Shrager joined the firm in 1989 and is the Director and President of Tweedy, Browne Fund Inc. Just like Browne, he is also a member of the Management and the Investment Committees. He previously worked as a consultant for Arthur D. Little and is experienced in working in acquisitions and mergers. He holds a bachelor’s and a master’s degrees from Columbia University.

John D. Spears joined the firm in 1974 and is the Vice President of Tweedy, Browne Fund Inc. He is a member of the firm’s Management and Investment Committees. He previously worked with Davic Associates, Berger, Kent Associates, and Hornblower & Weeks-Hemphill, Noyes & Co. He is an alumnus of the University of Pennsylvania – The Wharton School, Drexel Institute of Technology, and Babson Institute of Business Administration.

Robert Q. Wyckoff, Jr. joined the firm in 1991 and is the Chairman and Vice President of Tweedy, Browne Fund Inc. Just like the other three managing directors, he is also a member of the firm’s Management and Investment Committees. He previously worked at Stillrock Management, J&W Seligman, C.J. Lawrence, and Bessemer Trust. He holds a bachelor’s degree from the Washington & Lee University and a Juris Doctor degree from the University of Florida School of Law.

In its Q2 2019 Investor Letter, Tweedy, Brown Company LLC reported that its four funds produced double-digit year-to-date (YTD) returns for the quarter, ranging between 11.49% and 13.09%.

“After a comeuppance in May purportedly associated with the breakdown in U.S./Chinese trade negotiations, global equity markets regained their footing and continued their seemingly inexorable advance, reaching record highs shortly after quarter end. In this rather volatile and yet robust environment, the Tweedy, Browne Funds once again made substantial financial progress, with three out of four Funds besting their respective benchmark indices for the quarter. All four Funds produced double digit returns year-to-date through June 30 of between 11.49% and 13.09%.

Returns for the quarter were in large part a product of strong results in a number of the Funds’ media, auto, food & beverage, and financial holdings. This included strong returns in media companies such as WPP, the Daily Mail, and Axel Springer. As we write, Bain Capital has just agreed to buy 60% of WPP’s market research unit, Kanter, bringing WPP approximately $3.1 billion in cash proceeds, which the company can use to pay down debt and fund share buybacks. Axel Springer was also the subject of a buyout proposal during the quarter. The company’s board formally endorsed a deal after quarter end agreeing to a buyout of Axel Springer’s minority shareholders by KKR & Co. at a price of €63 in cash. This price represents approximately a 40% premium to the stock’s closing price on May 29, 2019, the day prior to the announcement that deal negotiations were underway, and up to a 208% premium to the Funds’ weighted average cost.1 The deal is contingent on KKR receiving a minimum tender of 20% of the shares outstanding. Friede Springer (the widow of the company’s founder) and Mathias Döpfner (the company’s CEO), who together either directly or indirectly control approximately 45% of the company’s shares, will retain their shares and continue to be involved with the company.

The Funds’ South Korean auto holdings, Hyundai Motor, Hyundai Mobis and Kia Motors, produced attractive returns during the quarter, as did AutoZone, the auto parts retailer, and food & beverage holdings, Nestlé, Unilever, Diageo and Heineken. The Fund’s bank and insurance holdings, including DBS, HSBC, Standard Chartered, United Overseas Bank, Berkshire Hathaway, SCOR and Zurich Insurance Group, were also strong performers during the quarter.

In contrast, a number of the Funds’ technology-related communication services holdingsand energy holdings produced disappointing results. This included companies such as Alphabet (Google), which is facing antitrust scrutiny; and two Chinese internet companies, Baidu and Sina, both of which reported slowing growth largely due to macroeconomic and industry headwinds, regulatory impacts, and near term competitive pressures. As oil prices continued to be volatile, trending down during the quarter, the stock prices of Halliburton and ConocoPhillips followed suit. In addition, Hong Kong-based developer, Hang Lung, UK-based auto distributor, Lookers, U.S.- based 3M, and Bank of New York Mellon all faced price declines during the quarter.

With the exception of the Global Value Fund II – Currency Unhedged, which had positive net cash flows during the quarter, the Funds were net sellers in what was a rather modest quarter in terms of purchases and sales. We sold Alcon, the Novartis spinoff, from the Global Value Fund and Worldwide High Dividend Yield Value Fund; and Honda, which was held in the Value Fund. Both stocks were trading at or near our estimates of intrinsic value at the time of sale. In the Global Value Fund, we sold our remaining shares of Halliburton, the U.S.-based oil service company, whose near-term price performance had been a disappointment, as well as our remaining shares of Cloetta, the Swedish confectionary company, which had appreciated to price levels that were at or near our estimate of intrinsic value. We trimmed a number of other positions in the Funds that were trading at or above our estimates of intrinsic value, including, Safran, AutoZone, MasterCard, AGCO, and Zurich Insurance, among others. We also began to trim back our Axel Springer position in the Global Value and Worldwide High Dividend Yield Value Funds after Axel Springers’s deal announcement with KKR, at prices very near the anticipated buyout price.”

You can download a copy of Tweedy, Browne Company LLC’s Q2 2019 Investor Report here:

Tweedy, Browne Company LLC’s Q2 2019 Investor Report

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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