Donald Yacktman's funds [Yacktman Fund (YACKX), Yacktman Focused (YAFFX)] are the top performing funds in the last 10 years (number 1 and 2 spots in terms of performance among large value stock funds, based on Morningstar). They did especially well in the past five years, coming out of the financial crisis in a much better shape, compared with other famous value funds.
Yacktman is a value investor. His style is growth with a reasonable price but contrarian in nature. He likes growth companies at low prices and buys a stock when it sells for less than an investor would pay to buy the entire company. Let's first look at his current top stock holdings:
| Company | Symbol | % Assets |
|---|---|---|
| News Corporation | NWSA | 20 |
| Pepsico, Inc. Common Stock | PEP | 10.53 |
| Procter & Gamble Company (The) | PG | 4.97 |
| Microsoft Corporation | MSFT | 4.92 |
| Coca-Cola Company (The) Common | KO | 4.70 |
| Comcast Corporation | CMCSK | 4.15 |
| Johnson & Johnson Common Stock | JNJ | 4.00 |
| ConocoPhillips Common Stock | COP | 3.74 |
| Viacom | VIA.B | 3.55 |
All of these companies are household names. Pepsi and Coca-Cola are brand name beverage companies. Johnson & Johnson and Procter & Gamble are consumer staples companies that are well managed. He also likes media companies that control the distribution channels: News Corp and Viacom. Finally, Microsoft is a dormant technology company that agains controls most computing tasks (consumer PCs and enterprise office suite).
Let's look closely at these stocks' valuations:
Equity Holdings
| Averages | YACKX | Category Avg |
|---|---|---|
| Price/Earnings | 13.73 | 12.83 |
| Price/Book | 2.45 | 1.66 |
| Price/Sales | 1.37 | 1.17 |
| Price/Cashflow | 9.52 | 4.96 |
| Median Market Cap | 56.08K | 50.87K |
| 3 Year Earnings Growth | 7.17% | 0.68% |
One can see that Yacktman's stocks have higher P/E, P/B, P/S, P/Cashflow ratios than the large value funds' average. However, they also have much higher 3 year earnings growth (7.17% vs. 0.68%). In a word, Yacktman's stocks are solid growth companies with reasonable prices. This is similar to Warren Buffett's style: good companies with cheap prices.
One can expect such an approach will deliver reasonable returns but with much lower risk. This is exactly what Yacktman's funds delivered in the past. The following shows the comparison between Yacktman fund and diversified dividend stock ETF portfolios [the strategic asset allocation portfolio consists of equal weights of U.S. Stocks, International Stocks, Emerging Market Stocks and REITs ETFs (i.e. 25% each) and rebalanced monthly]
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| YACKX | 18% | 153% | 15% | 52% | 10% | 40% |
| Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 | 21% | 143% | 5% | 15% | 7% | 21% |
| Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 | 13% | 83% | 15% | 78% | 16% | 78% |
For performance of more than 5 years, please refer here.
From the above, Yacktman out performed the diversified ETF strategic asset allocation portfolio by a big margin, though losing out to the tactical one.
In conclusion, investors who would like to pick stocks for their own portfolios should look at those top holdings Yacktman Fund has. The solid companies with good growth perspective will deliver. On the other hand, this should be used only for a portion of your portfolios for diversification purpose.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
