22 Jul 2013 Yacktman Shareholder Update - Q2 2013 ( Portfolio )
Top Contributors
For the quarter, top contributors to results included Microsoft, Cisco, News Corp. and Viacom.

Shares of both Microsoft and Cisco Systems rose after reporting solid earnings results. For several years, we have believed the demise of “old tech” has been greatly exaggerated and the valuation for companies like Microsoft and Cisco Systems remain attractive in the current investment environment.

News Corp. and Viacom were also strong contributors to the results during the quarter. At the end of June, News Corp. completed its spin-off. As a result, we now own shares in both 21st Century Fox (“Fox”), which owns an attractive collection of cable, broadcast, film and cable and satellite properties around the world and in News Corp. (retaining the old name), which largely consists of newspapers, book publishing and a collection of Australian assets.

By far our larger investment going forward is in the Fox shares, which we think will be one of the fastest growing media companies. Fox is extremely well positioned for growth, especially internationally, and in the next few months will launch Fox Sports 1, a national sports network which we think could be a significant new growth opportunity domestically.

Top Detractors
During the quarter, Clorox, Blackberry, Sysco Corporation and Dell were the leading detractors.

Clorox’s shares declined after a sharp rise during the first quarter but continue to be up solidly for the year. Consumer staple stocks in general modestly lagged the market during the quarter after an exceptionally strong start to the year.

Blackberry’s shares, which represent a small position in the funds, fell sharply at the end of June after the company reported sales of its new phones lagged expectations. In the previous two quarters we used the sharp price rise to significantly reduce our holding in Blackberry, which helped cushion the decline.

Sysco Corporation’s stock fell modestly after the company reported weak earnings. Its restaurant clients continue to face slow traffic, which has led to margin pressure for Sysco. We think the shares will respond positively over time as its customers recover and unusually high expenses for an implementation of an SAP software system decline.

Dell’s shares fell modestly as the stock had been trading above the Dell Management takeover price and no new bidders appeared. We think the proposed management buyout is unattractive and are voting against it. Recently, we went on record supporting Carl Icahn and Southeastern Asset Management’s proposal to replace the board and offer a tender to shareholders who wish to sell.

Management at Dell has done a poor job at both business execution and capital allocation. It is sad that having frustrated investors
with overpriced acquisitions, ill-timed share repurchase, poor corporate strategy and an accounting scandal that led to a settlement with the SEC, management jumped in to purchase the entire company, with the stock not far from a recent low. We believe other outside proposals would be of much greater benefit to shareholders. We recommend others reject the acquisition proposal and support the Icahn/ Southeastern proposal.

New Position
As mentioned earlier, at the end of the quarter we acquired a position in Oracle Corporation. Over the last few years we have purchased many positions in established technology companies where the growth rates have slowed but we believe there is significant free cash flow and the valuation is very attractive. We have referred to these investments as “old tech.” These stocks seem to lack a natural home buyer as they pass from growth managers who often pay high multiples for what they perceive to be long-term growth to value managers who dislike the rate of change that can occur in the technology industry due to innovation and competition.

Portfolio Sale
Pfizer was removed from the funds due to price appreciation. The company has struggled to grow over time as it has not has not been able to produce enough new drug revenues to offset major patent expirations like Lipitor. Despite the lack of growth, the stock has appreciated significantly, and we do not think it represents a good value at current prices.

Conclusion
We are happy with results for the quarter. We will continue to objectively examine the Funds holdings and potential new opportunities as we seek to produce favorable results and manage risk over a market cycle. Our team will continue to be patient, diligent and objective when managing the Funds.