At the halfway mark in 2019, the U.S. stock market is sailing ahead happily, and our stock funds are fully participating. Our four stock funds' gains range from 22.43% (Partners Value) to 25.51% (Hickory) vs. 18.54% for the S&P 500. Each equity fund stands comfortably ahead of its benchmark. The Balanced Fund, with just under half of its assets allocated to stocks, is up 12.92%. The Short Duration and Core Plus bond funds are also showing good results with gains of 2.89% and 5.33%, respectively. These fixed income returns reflect some capital appreciation, in addition to coupon interest, as the bond market has responded to Fed encouragement.
Today's litany of woes would focus on the factors that have historically foreshadowed a troublesome rise in the inflation rate. The Fed has increased the money supply and suppressed interest rates for ten years and seems recently to have resolved to continue its stimulative policies. Deficit spending to spur recovery from the Great Recession continued unabated for eight years, and then we doubled down with a tax cut that pushed budget deficits well over a trillion dollars a year. Budget discipline, even in a period of economic growth and record-low unemployment, seems to be of no concern to either political party. Modern Monetary Theory (MMT) appears to be a new version of “deficits don't matter.” So far, the only serious inflation we have seen in a long time has been in stock and bond prices (and those are welcome). But, given current policies, it seems reasonable to expect upticks in the general level of inflation.
Our warnings have proved correct from time to time, and there are plenty of reasons to be wary today—inflation and higher interest rates would not be good for stocks or bonds—but trying to sidestep trouble (i.e., market timing) has not been particularly productive for investors. Our game plan, generally, has been to invest in companies that can not only withstand adversity, but take advantage of it. We have written regularly about ways that bear markets and periods of financial crisis have been wonderful for strong, opportunistic companies such as Berkshire Hathaway and Liberty Media. Companies with strong competitive advantages (“moats”) generally have reasonable pricing power that helps them neutralize the impact of inflation. Payments companies, such as Visa and Mastercard, collect fees based on (rising) transaction values. Innovative companies that can apply new technologies to evolving their businesses have more control over their own destinies than cyclical, commodity-based, economically sensitive businesses. Finally, some companies would actually benefit from higher interest rates—e.g., banks, which could earn higher net interest margins on their deposits.
There is an old joke that “in a bear market, all correlations go to one.” In a sharp correction like the fourth quarter of 2018 or a bear market like 2008-09, all stocks tend to collapse together. But the good ones do not stay down. We have experienced all sorts of market trauma over the past 36 years. Yet, the two funds that have their roots in our original partnerships that started in 1983 (Partners Value and Partners III) have cumulative gains of 5,130.71% and 6,326.35%, respectively, compared to the S&P 500's 4,232.26%. Nothing is certain, but we would assert that patient, sensible, informed value investing works. We feel very good about our companies and the likelihood that they will provide more good returns over the years.
Thanks again to shareholders for entrusting your capital to us. We are in this together, and we appreciate your confidence.
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Past performance is not a guarantee of future results. All
investments involve risks, including possible loss of principal.
Returns assume reinvestment of dividends and redemption at
the end of each period, and reflect the deduction of annual operating expenses.
Returns also include fee waivers and/or expense reimbursements, if any; total
returns would have been lower had there been no waivers or reimbursements. The
Investment Adviser has agreed in writing to waive its fees and reimburse
certain expenses (excluding taxes, interest, brokerage costs, acquired fund
fees and expenses and extraordinary expenses) to limit the total annual fund
operating expenses for: Value Fund-Institutional Class, 0.99%; Partners
Value-Institutional Class, 0.99%; Short Duration Income Fund-Institutional
Class 0.48%; and Core Plus Income Fund-Institutional Class, 0.40%, of each
Class's average daily net assets through July 31, 2019.The investment adviser
has agreed in writing to limit the total annual fund operating expenses of the
Balanced Fund's Institutional Class shares (excluding taxes, interest,
brokerage costs, acquired fund fees and expenses and extraordinary expenses) to
0.70% of the Class's average daily net assets through July 31, 2020.
(a) Institutional Class shares became available for sale on
July 31, 2014. For performance prior to that date, this table include the
actual performance of the Fund's Investor Class (and use the actual expenses of
the Fund's Investor Class), without adjustment. For any such period of time,
the performance of the Fund's Institutional Class would have been similar to
the performance of the Fund's Investor Class, because the shares of both
classes are invested in the same portfolio of securities, but the classes bear
different expenses.
(b) From and after March 29, 2019, the Fund invests the
majority of its assets in the common stock of medium-sized companies, which the
Fund considers to be companies with a market capitalization, at the time of
initial purchase, of greater than $1 billion and less than or equal to the
market capitalization of the largest company in the Russell Midcap Index. Prior
to that date, the Fund invested the majority of its assets in the common stock
of smaller- and medium-sized companies, which the Fund considered to be
companies with a market capitalization, at the time of initial purchase, of
less than $10 billion.
(c) Institutional Class shares of the Balanced Fund became
available for sale on March 29, 2019. The shares of both classes are invested
in the same portfolio of securities, but the classes bear different expenses.
(d) From and after December 16, 2016, the Fund has generally
maintained an average effective duration of between one to three and a half
years. Prior to that date, the Fund maintained a dollar-weighted average
maturity of between two to five years.
Index performance is hypothetical and is shown for
illustrative purposes only. The S&P 500® is an unmanaged index consisting
of 500 companies generally representative of the market for the stocks of
large-size U.S. companies. The Russell Midcap® Index tracks the performance of
the 800 next-largest U.S. companies, after the 1000 largest U.S. companies. The
Morningstar Moderately Conservative Target Risk Index is an asset allocation
index comprised of constituent Morningstar indices and reflects global equity
market exposure of 40% based on an asset allocation methodology derived by
Ibbotson Associates, a Morningstar company.
As of 06/30/2019, each of the following portfolio companies
constituted a portion of the net assets of Value Fund, Partners Value Fund,
Partners III Opportunity Fund, Hickory Fund, and Balanced Fund as follows:
Berkshire Hathaway Inc.-Class B: 7.2%, 6.0%, 10.7%, 0%, and 2.5%. Charter
Communications, Inc.-Class A: 0%, 0%, 0%, 0%, and 2.0%. GCI Liberty, Inc.-Class
A: 0%, 0%, 1.8%, 4.2%, and 0%. Liberty Braves Group-Series A & C: 0%, 0%,
0%, 1.4%, and 0%. Liberty Broadband Corp.-Series A & C: 0%, 5.9%, 5.4%,
7.8%, and 0%. Liberty Broadband Corp.-Series C: 7.0%, 0%, 0%, 0%, and 0%.
Liberty Expedia Holdings, Inc.-Series A: 0%, 0%, 0%, 3.1%, and 0%. Liberty
Formula One Group-Series A & C: 0%, 0%, 0%, 1.7%, and 0%. Liberty Global
plc-Class C: 2.9%, 4.0%, 6.7%, 2.9%, and 0%. Liberty Latin America Ltd.-Class
C: 0%, 2.0%, 1.0%, 2.5%, and 0%. Liberty SiriusXM Group-Series A & C: 0%,
3.8%, 3.6%, 3.8%, and 0%. Liberty SiriusXM Group-Series C: 2.8%, 0%, 0%, 0%,
and 0%. Mastercard Inc.-Class A: 4.4%, 4.7%, 5.0%, 0%, and 2.1%. Qurate Retail,
Inc.-Series A: 0%, 2.1%, 1.2%, 2.5%, and 0%. Visa Inc.-Class A: 4.2%, 4.8%,
5.0%, 0%, and 2.2%.
Holdings are subject to change and may not be representative
of the Fund's current or future investments.
Over time, the Liberty Media family of companies has
included a large number of entities, including the following of our current
portfolio companies: Charter Communications Inc., GCI Liberty, Inc., Liberty
Braves Group, Liberty Broadband Corp., Liberty Expedia Holdings, Inc., Liberty
Formula One Group, Liberty Global plc, Liberty Latin America Ltd., Liberty
SiriusXM Group and Qurate Retail, Inc.
The opinions expressed are those of Weitz Investment
Management and are not meant as investment advice or to predict or project the
future performance of any investment product. The opinions are current through
the date of publication, are subject to change at any time based on market and
other current conditions, and no forecasts can be guaranteed. This commentary
is being provided as a general source of information and is not intended as a
recommendation to purchase, sell, or hold any specific security or to engage in
any investment strategy. Investment decisions should always be made based on an
investor›s specific objectives, financial needs, risk tolerance and time
horizon.