Hi, guys.
I'll have a few minutes to chat with Mr. Yacktman this Friday. Mr. Yacktman manages YCG Enhanced, a large cap growth fund with an options overlay and some bond exposure; those are the "enhanced" of the name. Five star, Silver, Great Owl, $400 million after seven years. As you might infer, this Mr. Yacktman is the son on Don Yacktman, long-time manager of Yacktman and Yacktman Focused, and brother of Stephen Yacktman, their current manager.
The two Yacktman funds have phenomenal long-term records. Interestingly, YCG's is better: substantial higher returns than YAFFX, slightly high volatility, substantially higher Sharpe, modestly lower expenses. The Yacktman family investment in the fund is phenomenal.
We've been working on a profile of the fund. Our normal procedure is to use statistical screens (and reader leads) to identify interesting possibilities, then we write a profile based on the public record and performance. We only turn to the management team near the end of the process, when we have specific questions to pursue and less potential for being swayed by their eloquence.
If you have been following the fund and have comments or questions that you'd like shared, please do let me know.
As ever,
David
Comments
Derf
If I'm worried about the ulcer index, and eponymous numbers, why not go with T. Rowe Dividend Growth (PRDGX) and call it a day?
The other thing they show are factor weightings; e.g., what role does momentum seem to play now compared with its peers and its five-year range? That implies noticeably more growth and momentum loading than usual.
I'll ask about business continuity (the key-man risk) and sector decisions if I can.
Thanks!
I'll ask but I think the "ballast" function of cash might be covered by their options positions. It seems to me that I read that their goal is to remain more-or-less fully invested but that not all of that investment is in the stock market.
we had a very long talk that covered a lot of ground.
The shortest version of his investment strategy is to buy and hold "global champions," which he defines as companies whose pricing power is supported by a network effect. A simple example would be MSCI. The more that investors get used to seeing MSCI benchmarks for their investment products, the more valuable the MSCI brand becomes. That means that more firms will have an incentive to use MSCI and MSCI will have the ability to raise fees as above-market rates.
"Global champions" are good compounders, because they tend to be high quality businesses committed to sustaining long-term relationships with clients (which is what accounts for the consistent and consistently rising income flow).
Options are a small but valuable part of the portfolio. The casino mentality that we see in the equity market also rules the options market; lots of people are trying to use options to create leveraged bets in the hopes of getting rich quick. As a result, options sell as a premium. He reports that the long-term return of equity options is about 200 bps above the long-term return of equities. He might buy an option on a stock they were already thinking of buying or sell one on a stock they were already thinking of selling. The net effect is cheap upside in the one case and cheap downside protection in the other.
The apparent over-exposure to the financial sector is sort of illusory. A bunch of "finance-lite" companies, such as MSCI, FTSE, insurance brokerages, payment processors, operate as virtual global duopolies with low capital costs, a network effect that serves as a barrier to entry and consistently growing income. They don't have a lot of interest rate / credit risk exposure but do get classified as "financials."
Finally, his strategy is to remain fully invested because he's not good at timing the market and doesn't believe anyone else is, either. He holds a lot of cash occasionally, but only when the returns on cash exceed the projected returns on stocks. (He cited 2007 as an example.) The mantra is "if you're looking to buy great companies with good long-term prospects, the best time to invest was ten years ago, the second-best time is now."
Thanks, too, to Dennis Baran for ferreting some of this stuff out in advance of the interview!
For what interest that holds,
David