The Yacktman Fund's Donald Yacktman, the mutual-fund manager with the best record in the past 10 years, has boosted his holdings in out-of-favour stocks, including scandal-plagued media giant News Corp. and troubled computer-networking bellwether Cisco Systems.
The manager of the $5.4-billion (U.S.) fund also initiated a big position in Research In Motion, maker of the beleaguered BlackBerry smart phone, and added to a stake in Hewlett-Packard, both of which have seen their shares slide this year. Yacktman made the changes in the second quarter, according to information from Morningstar and Bloomberg.
In addition to stocks, the Yacktman Fund bought a boatload of U.S. Treasury bills despite the volatility that swirled around the sector in the run-up to the debt-ceiling debacle, which threatened to cause their devaluation. President Barack Obama signed a debt-limit compromise Tuesday, the day the U.S. would have failed in its ability to pay all of its obligations, such as social security and personnel salaries.
The Yacktman Fund has risen 4.9 per cent this year while the benchmark S&P 500 Index is little changed. Over five years, the mutual fund has risen an annual average of 10 per cent, more than five times the pace of the S&P 500. That makes it the No. 1 mutual fund, a distinction it also holds over three, 10 and 15 years. But the Yacktman Fund doesn't only protect investors from market downturns - it rockets in bull markets. In 2009, as the S&P 500 index jumped 26 per cent, the fund rose a staggering 59 per cent.
That's why investors have added more than $2.4-billion to the fund in the past year.
Donald Yacktman started the fund in 1992 and his management team now includes his son Stephen Yacktman and Jason Subotky.
The Yacktman Fund gets a "buy" rating and a five-star grade from TheStreet Ratings, which indicates the fund has an excellent track record for maximizing performance while minimizing risk. It won TheStreet's 2011 Best Mutual Fund award for the large-cap core category.
The fund currently holds 38 stocks and 53 per cent of its assets are concentrated in its top 10 holdings. It also has 16 Treasury bond holdings of varying sizes. There is a slim 10 per cent annual portfolio turnover, indicative of a buy-and-hold strategy.
The fund's largest sector weighting is consumer services, at 30 per cent of the portfolio, followed by consumer goods, at 28 per cent.
The fund sold out its 1 million share stake of personal-computer maker Dell in the period. Its shares are up 20 per cent this year.
Here are five of the fund's big buys of out-of-favour stocks during the second quarter:
News Corp. is the fund's largest holding, at 10.7 per cent of the portfolio, after it added 3.4 million shares in the second quarter. That stake now has a market value of $575-million.
The company is still in the midst of a phone-hacking scandal that includes potential criminal charges against current and former employees and its ethics and policies may come under review in other countries and could potentially impact CEO Rupert Murdoch's empire. The political backlash in the U.K. has already resulted in its dropping its bid for the British satellite broadcaster BSkyB.
News Corp.'s shares are up 11 per cent this year, but down 10 per cent over the past three months after the scandal broke. Its board recently authorized a $5-billion share repurchase program, which should help support share prices.
The company is a media conglomerate with a wide range of assets: filmed entertainment; television's Fox Network; 35 TV stations; and Star, a television network in Asia. It also has cable network programming; direct-broadcast satellite television (Sky Italia); magazines and inserts, and newspapers in Australia, the U.K. and in the U.S., and it owns the book publisher HarperCollins, and its online properties including MySpace.
The Yacktman Fund boosted its Microsoft stake by 1.7 million shares in the second quarter, bringing its total holdings to 10.6 million shares, or 5.1 per cent of the fund, worth $275-million.
Microsoft, which has a market value of $228-billion, has seen its shares decline 1.1 per cent this year, but they are up 8 per cent over the past 12 months. Long-term, its shares have a lackluster five-year annualized return of 4.4 per cent.
Microsoft, the developer of the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server and SQL Server, is now transitioning into cloud-computing products, which is a move to Web-based applications, which means it's entering new markets.
Among its recent efforts, the company has partnered with phone maker Nokia, and that is expected to drive large market-share gains for the Windows Phone platform and create the next $1-billion-plus annual revenue stream for the company, Morningstar says.
The fund almost tripled its stake in Cisco Systems to 15 million shares in the second quarter, worth $234-million, making it its fifth-largest holding at 4.3 per cent of the fund.
Cisco has been struggling of late, and its shares are down 21 per cent this year. Given its size and reputation it has a competitive advantage in its core markets of network routing and switching devices. But it faces tougher competition in its core markets and its management's efforts at diversifying its product line has resulted in a lack of focus, analysts say.
Cisco has a market value of $86-billion and also holds $27-billion in cash of its balance sheet. Its shares are down 31 per cent over the past 12 months and its shares have a three-year average annual loss of 10 per cent.
The fund's Hewlett-Packard stake grew by 1.1 million shares in the quarter to 3.4 million, worth $124-million, making it the fund's 16th-largest holding at 2.3 per cent of the portfolio.
Its shares are down 16 per cent this year and 23 per cent over the past 12 months as the information-technology giant has seen continued erosion in its consumer-oriented personal-computer markets.
And data-centre and networking biggies are elbowing their way into HP's traditional markets, and that increased competition could bring margin pressure. Oracle is also pushing into HP's traditional business hardware and services markets so it's seeing tougher competition on many fronts.
The fund bought 1.5 million shares of Research In Motion , initiating a stake worth $43.3-million during the second quarter, which is a 0.8 per cent portfolio allocation.
The company is best known for being an early innovator of wireless-communications devices with its BlackBerry product line, but it has lost market share to Apple's iPhones and Motorola's Android line of devices.
The Waterloo, Ont.-based company announced the layoff of 2,000 workers on July 25 as part of a "cost-optimization program," whereas Apple has been hiring staff.
Research in Motion has a market value of $13.1-billion and its shares have a forward price-to-earnings ratio of 4.7 versus the Standard & Poor's 500's 14.2.
It had an annual average earnings growth of 53.4 per cent over the past five years, while its revenue grew from $300-million in fiscal 2003 to almost $20-billion in fiscal 2011.
But its shares are down 49 per cent over the past three months and 57 per cent this year. Over the past three years its shares have averaged an annual decline of 41 per cent.