24 Jan 2012 Tweedy Browne - Q4 2011 Commentary ( Portfolio )
Our returns for the year were driven in large part by continued strong results in the traditionally more defensive components of our portfolios, i.e. consumer staples ( food, beverage, and tobacco stocks) and healthcare companies (pharmaceuticals). Top performing issues for the year included stocks such as Philip Morris International, Diageo, Unilever, Johnson & Johnson and Roche. The more cyclical components of the portfolio, i.e. (industrials, financials, oil & gas, and media stocks), which returned to strength in the fourth quarter, struggled for much of the year clouded by growing concerns that the global economy was slowing, and the possibility of a disorderly monetary crisis in the Eurozone. Our fourth quarter results were led by continued strength in consumer staples stocks such as Philip Morris, Diageo, Walmart and Unilever, and a significant uptick in some of our more cyclical holdings including Axel Springer, Total, Royal Dutch, and Union Pacific.

Portfolio activity was modest during the quarter with only a few new buys and complete sales. However, we did take advantage of the volatility to add to and trim a number of portfolio positions. In terms of meaningful new buys, we began building positions in ABB, the German engineering company, United Overseas Bank, the Singapore banking company, and SCOR, the French insurance company. In terms of sales, we sold our position in SK Telecom across all four of our Funds despite its attractive valuation metrics after they decided to go forward with what we felt was an ill-advised acquisition of a company in an entirely unrelated industry. We added to our position in Bangkok Bank, Novartis, G4S PLC, NGK Spark Plug, and Royal Dutch among others, and trimmed our positions in Fraser & Neave, Munich Re, Zurich Financial, and Linde.

All four of our Funds continue in large part to be positioned in larger, more globally diversified, underleveraged businesses that sell a plethora of products that are of growing interest to emerging middle classes around the globe. We continue to maintain significant positions in consumer staples and healthcare stocks, but also have substantial positions in more cyclical areas such as insurance, industrials, energy and media. While the spread in valuation between the more defensive and the more cyclical parts of the equity market has widened of late, the overall valuation for our portfolios remain quite reasonable to attractive with a forward 2012 weighted average price earnings ratio for our Funds’ equities, which range between 11.4X and 12.3X estimated earnings. Also, the equities in our four Funds had an average weighted dividend yield ranging from approximately 3.5% to 4.5%.

n terms of our outlook, we remain cautiously optimistic particularly when we look further out on the investment horizon. In the near term, we are all bobbing around on the macroeconomic pond as issues such as the Southern European debt crisis, accelerating deficits in the U.S., the Arab Spring, and the potential for a slowing China, just to name a few, continue to buffet global equity markets. If you are willing to look out over a reasonable period, say three to five years, we believe we will probably be in a better place, and the businesses we own on the whole should be bigger and stronger.