26 Jul 2010 Tweedy Browne - Q2 2010 Commentary ( Portfolio ) Volatility returned to global equity markets in the second quarter in large part due to uncertainties surrounding the debt crisis in Greece and Spain and concerns about economic policies in the U.S. and Europe. As a result, the gains of the first quarter were largely erased in the second quarter. While unsettling for many, the silver lining is that volatility often brings with it investment opportunities to those with a longer term perspective. It’s hard to imagine that just a few months back, market commentators were talking about the pricing of oil being changed to Euros, given the rather grim outlook for the U.S. dollar. Instead, the mounting deficits in a number of southern European countries have increased pressure on the Euro, with the currency declining against the dollar by nearly 20% from its previous high late last Fall. Memories are indeed short.
We feel that our Fund portfolios are currently well positioned, particularly in light of some of the macroeconomic challenges we are facing around the globe. Our Fund portfolios have very little direct exposure to the PIIGS (Portugal, Ireland Italy, Greece, and Spain), our financial exposure in Europe is limited to a couple of insurance companies, and we have no investments in European bank stocks at this time. The bulk of our investments today in Europe and elsewhere are in larger, globally diversified, conservatively financed businesses that generate a considerable amount of their sales and profits in the emerging markets, and often pay an attractive dividend. While many of these companies, such as Nestle, Diageo, Heineken, Unilever, Kone, Novartis, and Total, among others, are headquartered in Europe, they are truly global enterprises. In our view, valuations remain reasonably attractive, and business is steadily improving. While many western governments wrestle with how to rein in large deficits, businesses have adjusted relatively well to the new economic realities.