31 Jan 2011 Tweedy Browne - Q4 2010 Commentary ( Portfolio )
Portfolio activity was once again relatively modest during the quarter. Among the more noteworthy new buys was Lockheed Martin, the US-based defense contractor, which we purchased for the Worldwide High Dividend Yield Value Fund. Lockheed Martin is the world’s largest defense contractor. It has what we think is a highly desirable product mix (F-35s, missile defense, cyber security) and limited exposure to supplemental defense spending, which will most likely be under pressure going forward due to government budget issues. At purchase,it was trading at roughly 10 times earnings, with a sustainable free cash flow yield excluding pensions of 12 to 13%. It had a dividend yield of 4.2%, and has a record of returning another 1-2% (per quarter) to shareholders in the form of stock buybacks. The dividend has increased by 10% or more over the last eight consecutive years, and the payout ratio is a conservative 42%.

We also added to several of our pre-existing fund positions during the quarter including Telecinco, Provident Financial, Roche, Teleperformance, Total and Zurch Financial among others.

Notable sales during the quarter included Home Depot, Edipresse, Grupo Minerali, and Korea Exchange Bank. We trimmed our position in a number of holdings including Axel Springer, Richemont, Coca Cola Femsa, Embotteladoras Arca, Comcast, Emerson Electric, Henkel, Krones and Linde among others.

In general, overall portfolio positioning has not changed materially for our Funds over the last quarter. Our Fund portfolios continue to be populated in large part by big, globally diversified and dominant businesses with strong competitive positions, often producing a plethora of moderately priced products for a growing middle class around the world. While these companies emerged from the crisis relatively unscathed and have participated in the market’s advance, we believe that they continue to represent good value in the market and trade at reasonable multiples of more predictable cash flows.