28 Apr 2012 Yactman Funds - Q1 2012 Commentary ( Portfolio )
The market rally, which began in the fourth quarter of 2011, generally favored lower‐quality, more economically sensitive securities. We think our funds currently have key positions in higher quality, more predictable businesses.

Portfolio Review
Consumer Staples
So far this year, consumer staples like PepsiCo and Procter & Gamble have produced only low single‐digit returns, far below those of the broader market. High quality stocks generally stalled to begin the year as momentum returned to the market, particularly in the financial service and technology sectors. This was largely the opposite of much of 2011 when the consumer staples sector was one of the best performing sectors. We think the combination of predictability, quality, and valuation of companies like Procter & Gamble, PepsiCo, Clorox, and Coca Cola is especially important in a time when we perceive many significant risks in the world.
Avon, a position we purchased in the second half of 2011, appreciated slightly during the quarter but jumped after the end of the quarter when it received an acquisition proposal which the company rejected. We think the offer demonstrates the strategic value of Avon’s products and global market presence. Recently, Avon announced a new CEO, Sherilyn McCoy, who comes to the company with a strong reputation after many successful years at Johnson & Johnson.

“Old Tech”
Technology shares were generally strong with Microsoft, Cisco, and Corning all appreciating solidly. HP continued to disappoint, declining by about 7%. Microsoft the top contributor to fund results in the first quarter, appreciating more than 20%, though we believe the stock remains inexpensive at less than 10 times our expectation of 2012 earnings when adjusting for net of the cash on the balance sheet. While HP struggled, we think the shares are remarkably inexpensive and the management team has improved significantly since Meg Whitman became CEO.

Healthcare
Shares in healthcare stocks generally appreciated during the quarter with medical device stocks stronger than pharmaceutical shares. This was the reverse of 2011 when pharmaceutical stocks were much stronger. C. R. Bard, our largest holding in healthcare had its victory in a patent case upheld, putting the company much closer to receiving a significant payment in the next 12 months. Shares in Pfizer and Johnson & Johnson were up only modestly in the first quarter, lagging the rise in the S&P.

Media
News Corp was up solidly during the first quarter. Operating results were strong and the company continued to repurchase a significant number of shares. Viacom’s stock appreciated only modestly last quarter as the company faced ratings weakness at Nickelodeon and MTV. Management is capably addressing the issues and we think the shares remain inexpensive at current prices.

Special Situations
Apollo Group, which was a star performer in 2011, was our weakest performer during the first quarter as its “for profit” universities experienced more challenging enrollment trends. We think the stock is very attractive after the recent declines.
Total System Services, a credit card processing firm was eliminated from both funds after strong price appreciation no longer made the security a bargain.