Investments

Weitz Funding Administration Hickory Fund Q1 2022 Commentary

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The Hickory Fund returned -13.15% within the first quarter of 2022, in comparison with -5.68% for the Russell Midcap Index. For the fiscal yr ended March 31, 2022, the Fund returned -3.87% in comparison with +6.92% for the index.

Portfolio returns for the quarter and monetary yr had been disappointing on each a relative and absolute foundation. Getting into January, the funding backdrop was already difficult. Accelerating inflation coupled with a hawkish flip on the Federal Reserve compelled traders to recalibrate their expectations. The uncertainty was additional compounded by the outbreak of battle in Europe. Already elevated power costs spiked as importers of Russian oil and pure gasoline seemed for different suppliers, pouring extra gas on the inflation fireplace as provide chains not but healed from the pandemic got here underneath additional stress. By quarter-end, the indexes had recouped a few of their intra-quarter declines, suggesting some market members believed dangers had begun to abate. In our opinion, nevertheless, the near-term (no less than) funding panorama stays fluid.

Our funding philosophy is centered on figuring out high-quality companies that we consider are rising in worth and buying their shares at what we estimate are discounted costs. This strategy necessitates a long-term perspective, measured over a number of years. Regardless of our long-term focus, we acknowledge our quarterly outcomes had been unsatisfactory and weighed down the fiscal yr. But, regardless of these declines, we stay optimistic about our portfolio holdings, and we consider the underlying companies are more healthy than current inventory value motion could seem. As a number of of our holdings grew to become extra attractively priced in our estimation, we’ve stepped in to purchase. Most notably, this contains our new Gartner (IT) place in addition to additions to CoStar Group (CSGP) and Dolby (DLB). On the finish of the quarter, our portfolio traded at an estimated price-to-value ratio within the excessive 70s, suggesting a more healthy outlook for ahead returns in comparison with the low-to-mid 90s at first of the fiscal yr. The drawdown of inventory costs and our trim and add actions each performed a job within the extra favorable forward-looking price-to-value ratio.

Our largest holding, Liberty Broadband (LBRDK, 26% shareholder of Constitution Communications, CHTR), was a substantial detractor in each the quarter and monetary yr. The pandemic accelerated adoption of Constitution’s broadband service as People sheltered at residence, however because the nation reopens, buyer additions have naturally slowed. On the identical time, rivals have introduced lofty, multi-year targets for aggressive wi-fi broadband choices and expansions of fiber-optic service. However, we expect Constitution nonetheless has a powerful hand, together with a community that’s already in place and might be affordably upgraded to stay aggressive with fiber and its personal fast-growing cell providing that’s taking share from incumbents of their core wi-fi enterprise. One other silver lining: share repurchases at these decrease costs may speed up development in Constitution’s per-share worth.

CarMax (KMX) was additionally a two-time offender, proving to be a detractor in each the quarter and monetary yr. Within the first yr of the pandemic, shares greater than doubled as provide chain disruptions restricted the flexibility of automakers to ship new automobiles to the market, pushing potential patrons into the secondary market and sending the costs of used automobiles hovering. As we shut the second yr of the pandemic, demand for used automobiles stays excessive, however sellers’ inventories stay tight. And as inflation’s attain has broadened (importantly to incorporate gasoline), traders are involved with shoppers’ capability to pay ever-higher costs for used automobiles. Within the brief time period, unit volumes could also be unstable, but it surely’s vital to notice that CarMax’s enterprise mannequin of concentrating on a constant degree of money revenue per automobile offered helps insulate earnings from a decline in costs. Wanting long run, we stay optimistic that CarMax’s investments in its omnichannel (in-store, on-line or hybrid) shopping for expertise, mixed with nationwide scale, positions them for achievement sooner or later.

The remaining top-five detractors for the quarter had been Axalta (AXTA), LKQ (LKQ) and Black Knight (BKI), whereas Liberty Latin America (LILAK), Qurate Retail (QRTEA) and MarketAxess (MKTX) end off the fiscal yr’s top-five detractors.

Markel (MKL) was the lone standout performer for the quarter. Insurers sometimes profit from a powerful economic system, as pricing tends to enhance and the quantity of threat to be insured grows. We additionally count on larger rates of interest to translate into larger funding earnings as insurers recycle premium “float” into higher-yielding securities. The Fund’s new place in Gartner additionally supplied a modest raise. Gartner is a number one supplier of subscription- based mostly analysis providers to IT and enterprise professionals (i.e., C-suite executives). Gartner’s enterprise mannequin is enviable: knowledgeable analysts create analysis stories which are then syndicated to subscribing purchasers. Analysts are additionally made obtainable to purchasers for consultations. This one-to-many mannequin permits purchasers to achieve entry to what in any other case could also be cost-prohibitive analysis and significant enterprise intelligence. In the meantime, Gartner can make investments again into extra analysis capabilities and nonetheless earn a really wholesome margin.

AutoZone (AZO) was the Fund’s prime fiscal yr contributor. The market forces of upper costs and scarce provide of recent or used automobiles led homeowners to speculate extra within the upkeep of their automobiles. LKQ’s recycled auto elements enterprise equally benefited, making it a contributor for the fiscal yr. Markel’s sturdy quarter propelled it to be the second-greatest contributor for the fiscal yr, whereas telecom providers agency LICT (OTCPK:LICT) and aggregates provider Martin Marietta (MLM) spherical out the highest contributors.


Prime Relative Contributors and Detractors

For the QUARTER ending 03/31/2022

TOP CONTRIBUTORS

Return (%)

Common Weight (%)

Contribution (%)

% of Internet Property

Markel Company (MKL)

19.68

4.57

0.80

4.8

Gartner, Inc. (IT)

5.38

1.15

0.10

1.7

Liberty Braves Group-Sequence A & C (BATRA/BATRK)

-0.60

1.50

0.03

1.7

TOP DETRACTORS

Return (%)

Common Weight (%)

Contribution (%)

% of Internet Property

Liberty Broadband Corp. – Class A&C (LBDRA/Ok)

-16.52

8.18

-1.36

7.9

CarMax,Inc. (KMX)

-25.89

4.46

-1.21

4.3

Axalta Coating Methods Ltd (AXTA)

-25.79

3.54

-1.06

3.3

LKQ Company (LKQ)

-24.18

3.44

-0.84

3.4

Black Knight, Inc. (BKI)

-30.04

2.21

-0.74

2.0

Holdings are topic to alter and will not be consultant of the Fund’s present or future investments. Contributions to efficiency are based mostly on precise day by day holdings. Returns proven are the precise returns for the desired interval of the safety. Extra securities referenced herein as a p.c of the Fund’s internet property as of 03/31/2022: AutoZone, Inc. (AZO) 2.3%, CoStar Group, Inc. (CSGP) 5.2%, Dolby Laboratories, Inc. (DLB) 3.3%, LICT Company (OTCPK:LICT) 5.7%, Laboratory Company of America Holdings (LH) 4.4%, Liberty Latin America Ltd. – Class C (LILAK) 2.6%, MarketAxess Holdings, Inc. (MKTX) 3.2%, Martin Marietta Supplies, Inc. (MLM) 3.3%, Qurate Retail, Inc. – Class A (QRTEA) 0.7%, Qurate Retail, Inc. – Most popular (QRTEP) 1.6%.

Common Annual Whole Returns(%)

AS OF 03/31/2022

YTD

1 YR

3 YR

5 YR

10 YR

Since Fund Inception

Inception Date

Internet Expense

Gross Expense

Hickory Fund

-13.15

-3.87

8.87

6.16

7.27

9.21

04/01/1993

1.09%

1.14%

Russell Midcap®

-5.68

6.92

14.88

12.61

12.85

11.18


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Editor’s Word: The abstract bullets for this text had been chosen by Searching for Alpha editors.

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