Professional Documents
Culture Documents
Since
Inception
25 Year
20 Year
15 Year
1223.16
1015.68
893.51
554.75
86.48
105.14
13.69
4.93
12.49 3.82
529.46
na
na
na
na
45.73
54.29
29.68
-4.90
-5.98 -3.26
146.40
111.26
4.92% 1.46%
922.99
102.18
190.92
109.47
4Q
105.95
9.73
20.73 na
na
na
na
na
33.16
na
na
na
na
na
4.89
4.94
-3.57
1.01
Since
Inception
25 Year
20 Year
15 Year
One Year
4.92%
9.75
9.63
7.38
7.77 15.55
4.89
na
4.45
na
na
2.54
9.82
na
na
na
na
na
-5.98
15.33
na
na
na
na
na
4.94
4.43
5.33
-4.90
During the inception year, the S&P 500 and the EAFE Index were available only at month-end; therefore the S&P 500 value at 3/31/87 and
the EAFE value at 10/31/98 were used to calculate performance since inception.
Returns reflect reinvested capital gains and dividends but not the deduction of taxes an investor would pay on distributions or share
redemptions. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less
than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current
to the most recent month end may be obtained by visiting longleafpartners.com
The total expense ratios for the Longleaf Partners Funds are: Partners Fund 0.92%, Small-Cap Fund 0.91%, Partners International
Fund 1.27%, and Partners Global Fund 1.73% (as per the Prospectus dated 5/1/14). The Longleaf Partners Global Fund total expense
ratio at 6/30/14 (per the semi-annual report) is 1.58%. The Funds expense ratios are subject to fee waiver to the extent a Funds
normal annual operating expenses exceed the following percentages of average annual net assets: Partners Fund 1.5%, Small-Cap
Fund 1.5%, International Fund 1.75%, and Global Fund 1.65%.
After strong returns across all the Longleaf Partners Funds in 2013, only the Small-Cap Fund in 2014 exceeded
its benchmark index and our absolute return goal of inflation plus 10%. We are not pleased with the results
in our Funds outside of Small-Cap over the last twelve months, but we do welcome the increased volatility and
opportunity created as broad markets and stocks within those markets began to diverge in the second half of the
year.
We are seeing strong parallels in current markets versus the late 1990s that lead us to believe we will be returning
to an environment where the merits of individual holdings are more likely to be properly weighed by the market and
value investment approaches are more likely to be rewarded with solid absolute and relative returns. Based on
the underlying fundamentals at our companies, the actions our management partners are taking, and the broader
investing environment, we are confident that our portfolios are positioned for successful long-term compounding.
double-digit returns.1
Small cap stocks substantially underperformed
large caps, with the gap between the Russell 2000
and S&P 500 at more than 31% in 1998. The almost
9% gap in 2014 was the largest since then1.
The Partners and Small-Cap Funds contained
considerably elevated cash levels in both periods
because few stocks traded with the margin of safety
to meet our requisite discount.
Stocks outside the U.S. were dramatically more
undervalued. The EAFE Index fell short of the S&P
500 by more than 31% in 1997, the largest disparity
until it underperformed by more than 18% in 2014.1
The U.S. dollar index rose just over 13% in 1997 and
just under 13% in 2014.2
We held 29% of Longleaf Partners Fund in
companies domiciled elsewhere in 1998 because of
the opportunity set disparity. The Partners Fund
today has 25% in foreign holdings.
Oil prices declined more than 39% during 1998 and
49% in the last six months of 2014 and negatively
impacted our energy related holdings in both
periods.2
We delivered strong three and five year absolute
returns that surpassed our goal of inflation plus 10%
in the Partners Fund, but underperformed the index
in 1998, 1999, and 2014.
Only 14% of U.S. large cap managers beat the S&P
500 in 1997: the next-lowest level was 16% in 2014.
Large cap value managers faced even worse odds
fewer than 5% outperformed in 1997 and only 10%
in 2014.3
The market cap weighted S&P 500 rose 28.6% in
1998 while the equally weighted Value Line Index,
which is more representative of the average stock,
fell 3.8%. Though not as dramatic, the gap in 2014
was meaningful: 13.7% versus 3.1% respectively.2
Much like today, after widespread
underperformance in a stock run that distinguished
little among company fundamentals, many
investors in the late 1990s moved into what had done
well, including passive strategies in U.S. large cap
equities. The momentum of more money flowing
into the largest and most expensive stocks forced
Outlook
The lesson from the 1990s aftermath and from the Small-Cap
Funds results in 2014 is that underlying corporate values
eventually get reflected in stock prices, although nobody
knows what the payoff pattern will be in any given year. Our
management partners are not simply waiting for a more
favorable environment. Where prices are strong, they are
selling assets, spinning off segments, or creating high-yielding
structures. In the pockets of price weakness, managements
are using their financial flexibility to initiate buybacks of
their discounted shares, some for the first time. They are
opportunistically increasing values per share for a potentially
larger ultimate payoff. In many cases, our partners are backing
Before investing in any Longleaf Partners fund, you should carefully consider the Funds investment objectives, risks, charges,
and expenses. For a current Prospectus and Summary Prospectus, which contain this and other important information, visit
longleafpartners.com. Please read the Prospectus and Summary Prospectus carefully before investing.
RISKS
The Longleaf Partners Funds are subject to stock market risk, meaning stocks in the Fund may fluctuate in response to developments at
individual companies or due to general market and economic conditions. Also, because the Funds generally invest in 15 to 25 companies,
share value could fluctuate more than if a greater number of securities were held. Mid-cap stocks held by the Funds may be more volatile
than those of larger companies. With respect to the Small-Cap Fund, smaller company stocks may be more volatile with less financial
resources than those of larger companies. With respect to the International and Global Funds, investing in non-U.S. securities may
entail risk due to non-US economic and political developments, exposure to non-US currencies, and different accounting and financial
standards. These risks may be higher when investing in emerging markets.
The statements and opinions expressed are those of the author and are as of the date of this report.
The S&P 500 Index is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P
is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3,000 Index, which represents
approximately 10% of the total market capitalization of the Russell 3000 Index. MSCI EAFE Index (Europe, Australasia, Far East) is a broad
based, unmanaged equity market index designed to measure the equity market performance of 22 developed markets, excluding the US
& Canada. MSCI World Index is a broad-based, unmanaged equity market index designed to measure the equity market performance of
24 developed markets, including the United States. An index cannot be invested in directly.
P/V (price to value) is a calculation that compares the prices of the stocks in a portfolio to Southeasterns appraisal of their intrinsic
values. The ratio represents a single data point about a Fund and should not be construed as something more. P/V does not guarantee
future results, and we caution investors not to give this calculation undue weight.
As of December 31, 2014, the holdings discussed represented the following percentages of the Funds: Level 3 - 9.8% Longleaf Partners
Fund, 11.2% Longleaf Partners Global Fund, 14.0% Longleaf Partners Small-Cap Fund; FedEx - 4.0% Longleaf Partners Fund; Cheung
Kong - 7.6% Longleaf Partners Fund, 7.7% Longleaf Partners International Fund, 6.5% Longleaf Partners Global Fund; Philips - 6.2%
Longleaf Partners Fund, 4.9% Longleaf Partners International Fund, 5.7% Longleaf Partners Global Fund; Vivendi - 5.0% Longleaf
Partners Fund; CNH Industrial - 4.1% Longleaf Partners Fund; OCI - 6.1% Longleaf Partners International Fund, 5.3% Longleaf Partners
Small-Cap Fund, 5.0% Longleaf Partners Global Fund; Melco - 7.4% Longleaf Partners International Fund, 7.4% Longleaf Partners Global
Fund; K Wah - 5.8% Longleaf Partners International Fund, 3.6% Longleaf Partners Global Fund; Mineral Resources - 4.1% Longleaf
Partners International Fund, 3.1% Longleaf Partners Global Fund; Chesapeake Energy - 6.6% Longleaf Partners Fund, 5.6% Longleaf
Partners Global Fund; Murphy Oil - 3.5% Longleaf Partners Fund; CONSOL Energy - 5.2% Longleaf Partners Fund, 4.3% Longleaf Partners
Small-Cap Fund, 2.4% Longleaf Partners Global Fund; Loews - 7.7% Longleaf Partners Fund, 4.7% Longleaf Partners Global Fund. Fund
holdings are subject to change and holding discussions are not recommendations to buy or sell any security. Current and future holdings
LLP000238
Expires 4/15/15