Weitz Investment Partners Value Fund Q2 2022 Commentary

Weitz Investment Partners Value Fund returned -14.94% for Q2 2022 vs. -16.10% for the S&P 500. Click here to read the full fund letter.

Jul. 30, 2022 12:48 AM ETWeitz Partners Value Fund Institutional Class Inst (WPVIX), WPVLXAZO, BKI, BRK.A, BRK.B, DHR, DHR.PA, DHR.PB, DNB, FRBSP, FRC, FRC.PH, FRC.PI, FRC.PJ, FRC.PK, FRC.PL, FRC.PN, GOOG, GOOGL, HEI, HEI.A, IDEX, IT, KMX, LBRDA, LBRDB, LBRDK, LBRDP, LKQ, LSXMA, LSXMB, LSXMK, META, MKL, MKTX, VMC, WEHIX, SAFEX, WBAIX, WBALX, WCPBX, WCPNX, WEFIX, WNTFX, WPOIX, WPOPX, WVALX, WGMXX

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Summary

  • Weitz Investment Management focuses exclusively on asset management and provides clients with top-quality, personalized service. Over the past three decades, Weitz has leveraged its research driven approach to capitalize on investment opportunities that arise out of market inefficiencies.
  • The Partners Value Fund’s Institutional Class returned -14.94% for the second quarter.
  • Year-to-date, the Fund’s Institutional Class has returned -22.32%.
  • Lower stock prices, of course, are also the silver lining. From these price levels, things don’t have to go perfectly for our companies, and one certainty is that they won’t.
We need to make all our numbers balance

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The Partners Value Fund’s Institutional Class returned -14.94% for the second quarter compared to -16.10% for the S&P 500 and -16.70% for the Russell 3000. Year-to-date, the Fund’s Institutional Class has returned -22.32% compared to -19.96% for the S&P 500 and -21.10% for the Russell 3000.

It has been a rough six months for stock investors. Stubbornly persistent inflation at 40-year highs is a serious issue. The Federal Reserve has taken increasingly aggressive monetary policy steps to try to tamp it down. To date, the Fed has raised short-term interest rates three times, in larger increments than they have used in over 20 years. More rate hikes are on the horizon, and investors are concerned that the Fed won’t stop until we have a recession. With this backdrop, prices for stocks and other risk assets continued to decline.

Bear markets are painful, but they are a normal and inevitable part of investing. Lower stock prices, of course, are also the silver lining. From these price levels, things don’t have to go perfectly for our companies, and one certainty is that they won’t. Our long-term confidence stems from the resiliency, adaptability, and durability of our portfolio companies. Our businesses are geared to survive and eventually thrive through tougher times. We look forward to reporting on their continued progress.

Berkshire Hathaway (BRK.A, BRK.B), Alphabet (GOOG, GOOGL), Liberty SiriusXM (LSXMA), Meta Platforms (META), and Vulcan Materials (VMC) were the Fund’s largest quarterly detractors. The price declines largely reflected growing recession fears. Investors worried about the outlook for digital advertising (Alphabet and Meta), economically sensitive construction aggregates (Vulcan), and consumer discretionary spending (Liberty SiriusXM).

The story was similar at a raft of other companies whose stocks declined more than 10% during the quarter. While we may see some earnings resets, stocks are forward-looking and no longer reflect “blue sky” outlooks at these prices. Positive contributors for the quarter included Black Knight (BKI, thanks to news of a potential buyout), LKQ Corp (LKQ, due to strong operational execution), and Danaher (DHR, because of a favorable entry price).

Meta Platforms, Alphabet, and Liberty SiriusXM were also the Fund’s largest year-to-date detractors, with Liberty Broadband (LBRDK) and CarMax (KMX) rounding out the laggards list. We think all five stocks are priced at wide discounts to their business values, and we remain patient owners, as the potential upside should be worth the wait. Markel (MKL) was the Fund’s only positive contributor in the first half with a modest, single-digit return. While the Markel team is doing a fine job, we trimmed our shares by more than 20% during the second quarter to reinvest in more discounted opportunities.

During the quarter, we sold the Fund’s AutoZone (AZO) holdings at a substantial profit as the stock traded above our value estimate. Research analyst Jon Baker made an outstanding buy recommendation back in late 2020, and the stock has nearly doubled since then. AutoZone’s management team has done a terrific job, the business is humming, and the stock has clear momentum in this economic and market environment.

While selling a winner with positive trends is not especially comfortable, our discipline combined with the wider opportunity set drove the decision. To echo AutoZone’s famous jingle, we would gladly “Get in the Zone” again at the right price.

We bought a new position in life sciences leader Danaher as the broad market sell-off accelerated. We have owned Danaher for nearly five years in other Weitz strategies, and we are delighted to add it to the Fund at a satisfactory price. Danaher has strong competitive positions across life sciences, diagnostics, water analytics, and product identification. The company has a world- class management team guided by lean culture and the heralded Danaher Business System. Stay tuned for our upcoming Analyst Corner feature, where research analyst Nathan Ritz will outline our current investment thesis for Danaher.

We believe that investing in businesses of all sizes, using our Quality at a Discount framework, is an enduring advantage of a multi-cap strategy. Recent mid-cap additions such as Gartner (IT), AutoZone, Dun & Bradstreet (DNB), First Republic Bank (FRC), HEICO (HEI), IDEX (IDEX), and MarketAxess (MKTX) align with our collective vision for a successful “go anywhere” equity portfolio. If 2022’s volatility continues, we think active managers with a broad mandate will have even more opportunities to add value and earn their keep.

Valuation remains our North Star, and we think our stocks are priced at increasing discounts to business value. Our current estimate is that the portfolio trades at a price-to-value in the high 60’s — a level that suggests ample long-term return potential from both our mid- and large-cap holdings.

Top Relative Contributors and Detractors

TOP CONTRIBUTORS (%)

Return

Average Weight

Contribution

% of Net Assets

LKQ Corp.

8.63

3.05

0.18

3.3

Black Knight, Inc.

12.76

2.38

0.17

2.6

Danaher Corp.

6.43

1.27

0.14

2.6

TOP DETRACTORS (%)

Return

Average Weight

Contribution

% of Net Assets

Berkshire Hathaway, Inc.

-22.64

6.94

-1.68

6.6

Alphabet, Inc.

-21.69

7.23

-1.61

7.3

Liberty Media Corp-Liberty SiriusXM

-21.17

5.00

-1.10

4.9

Meta Platforms, Inc.

-27.48

2.99

-0.88

2.7

Vulcan Materials Co.

-22.45

3.05

-0.75

2.9

Data is for the quarter ending 06/30/2022. Holdings are subject to change and may not be representative of the Fund’s current or future investments. Contributions to performance are based on actual daily holdings. Returns shown are the actual returns for the specified period of the security. Additional securities referenced herein as a percent of the Fund’s net assets as of 06/30/2022: AutoZone, Inc. 0.0%, CarMax, Inc. 3.5%, Dun & Bradstreet Holdings, Inc. 1.8%, First Republic Bank 2.3%, Gartner, Inc. 2.0%, HEICO Corp. 3.1%, IDEX Corp. 1.8%, Liberty Broadband Corp. 4.7%, Markel Corp. 3.5%, and MarketAxess Holdings, Inc. 2.0%.

table: returns percentage

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Weitz Investment Management, Inc. profile picture

Wally is the founder and President of Wallace R. Weitz & Company. Wally, a Chartered Financial Analyst, manages Hickory Fund and Partners III Opportunity Fund and co-manages Value Fund and Partners Value Fund.Wally’s investment career began in 1961, at age 12, when he invested the profits from various entrepreneurial ventures. After going through a charting phase in high school, Wally discovered Benjamin Graham’s Security Analysis and was converted to value investing. After earning a B.A. in Economics at Carleton College in 1970, Wally spent three years in New York doing security analysis, primarily on the small companies in which G.A. Saxton made over-the-counter markets. In 1973 he joined Chiles, Heider & Co., a regional brokerage firm in Omaha, where he spent ten years as an analyst and portfolio manager. In 1983 he started Wallace R. Weitz & Company, and now heads a group of eight investment professionals that manages approximately $2 billion. Wally’s approach to value investing has evolved over the years. It combines Graham’s price sensitivity and insistence on a “margin of safety” with a conviction that qualitative factors that allow companies to have some control over their own destinies can be more important than statistical measurements, such as historical book value or reported earnings. Wally has the good fortune to be paid to pursue his favorite hobby, investing, but he also enjoys golf, skiing, tennis, reading, and working with charitable and educational foundations. Wally is on the Board of Trustees for Carleton College and serves on the Executive Committee of Building Bright Futures in Omaha.

Additional disclosure: Data is for the quarter ending 06/30/2022. 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 07/20/2022, 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.

Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Please visit weitzinvestments.com for the most recent month-end performance.

Investment results reflect applicable fees and expenses and assume all distributions are reinvested but do not reflect the deduction of taxes an investor would pay on distributions or share redemptions. Net and Gross Expense Ratios are as of the Fund’s most recent prospectus. Certain Funds have entered into fee waiver and/or expense reimbursement arrangements with the Investment Advisor. In these cases, the Advisor has contractually agreed to waive a portion of the Advisor’s fee 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 of the Fund’s average daily net assets through 07/31/2023.

The Gross Expense Ratio reflects the total annual operating expenses of the fund before any fee waivers or reimbursements. The Net Expense Ratio reflects the total annual operating expenses of the Fund after taking into account any such fee waiver and/or expense reimbursement. The net expense ratio represents what investors are ultimately charged to be invested in a mutual fund. Effective 03/29/2019, 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. 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. Performance prior to 03/29/2019 reflects the Fund’s prior principal investment strategies and may not be indicative of future performance results.

Index performance is hypothetical and is shown for illustrative purposes only. You cannot invest directly in an index. The Russell Midcap tracks the performance of the 800 next largest U.S. companies, after the 1,000 largest U.S. companies

Consider these risks before investing: All investments involve risks, including possible loss of principal. These risks include market risks, such as political, regulatory, economic, social and health risks (including the risks presented by the spread of infectious diseases). In addition, because the Fund may have a more concentrated portfolio than certain other mutual funds, the performance of each holding in the Fund has a greater impact upon the overall portfolio, which increases risk. See the Fund’s prospectus for a further discussion of risks related to the Fund. Investors should consider carefully the investment objectives, risks, and charges and expenses of a fund before investing. This and other important information is contained in the prospectus and summary prospectus, which may be obtained at weitzinvestments.com or from a financial advisor. Please read the prospectus carefully before investing. Weitz Securities, Inc. is the distributor of the Weitz Funds.

©2022 Weitz Investment Management, Inc. All rights reserved.

The Partners Value Fund’s Institutional Class returned -14.94% for the second quarter compared to -16.10% for the S&P 500 and -16.70% for the Russell 3000. Year-to-date, the Fund’s Institutional Class has returned -22.32% compared to -19.96% for the S&P 500 and -21.10% for the Russell 3000.

Source: https://seekingalpha.com/article/4527745-weitz-investment-partners-value-fund-q2-2022-commentary

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