Yacktman Asset Management LP is a financial investment advisor that is headquartered in Austin, Texas. It was founded by Donald Yacktman in 1992 as Yacktman Asset Management Co.
Currently the firm has more than $17 billion worth of assets under its management. The two flagship no-load mutual funds are the Yacktman Fund and the Focused Fund. The Yacktman fund has returned a compounded rate of 10.63% for the last ten years versus a 7.1% for the S&P 500. The Focused fund has done slightly better by netting an annualized return of 10.95% for the same time period.
Both the funds have achieved superior returns while eschewing full participation in the volatility of the markets. While they had an underperformance going into the heady internet bubble of 1999, they both came out ahead by being up for the following three down market years of 2000 to 2002 as the bubble burst. Similarly, in the financial crisis of 2008 they were less down than the market and in the following year of 2009 more than doubled the market returns.
Apart from Donald Yacktman who is the President and Co-Chief Investment Officer, the firm’s business is handled by his son Stephen Yacktman along with a team comprising Jason Subotky and Russel Wilkins. Mr. Yacktman Sr. has a firm conviction in his investment strategy of buying low and selling high and his whole team comes from a similar perspective.
As way of background, Mr. Yacktman Sr. served as the Senior Portfolio Manager with Selected Financial Services for 10 years before founding Yacktman in 1992. With this same firm, he executed for 9 years the role of a portfolio manager of the Selected American Shares, a mutual fund. Morningstar honored him as the ‘Portfolio Manager of the Year’ in 1991.
Prior to his successful stint with Selected Financial, Mr. Yacktman Sr. was a portfolio manager at Stein Roe & Farnham. He holds an MBA with distinction from Harvard Business School and a B.S. Magna Cum Laude in Economics from the University of Utah.
His son Stephen Yacktman now is the Senior Vice President, Portfolio Manager, and Co-Chief Investment Officer at Yacktman. Mr. Yacktman Jr. joined Yacktman in 1993 after successful completion of an MBA from Brigham Young University and B.S. in Economics with minor in Math.
Mr. Wilkins operates as the Senior Vice President and Portfolio Manager at Yacktman. Before joining Yacktman in August 1998, he operated as a Senior Business Analyst at Electronic Data System Corp. Mr. Wilkins is an MBA from Pepperdine University and has obtained a BA in Asian Studies and in Japanese from Brigham Young University.
Mr. Subotky joined Yacktman in 2001 and presently works as Senior Vice President and Portfolio Manager at the firm. Hitherto, he was a General Partner at Peterschmidt Ventures and Vice President at Goldman Sachs. Mr. Subotky holds an MBA from Brigham Young University and a BMusic from the University of Southern California.
Yacktman Asset Management employs the simple ‘buy low, sell high’ approach that they believe combines the best features of ‘growth’ and ‘value’ investment. Undervalued stocks of those companies that are expected to grow are identified and purchased at low price and sold when they gain substantially.
Implementation of this philosophy is not that simple though. It requires detailed and objective research. Yacktman identifies such relatively unknown companies through the application of the following criteria:
• Good Business that means high market share for the main product and / or service line, low relative capital requirement that enables the company to make cash during growth, high cash returns on tangible assets, long product cycles and short customer repurchase cycle, and unique features of the franchise.
• Shareholder Oriented Management that distributes the returns in a fair manner while resisting the temptation of self appropriation of most of the returns. Such companies reinvest returns in business and are still left with extra cash, buy back stock, and make meaningful and symbiotic acquisitions only.
• Low Purchase Price stocks are identified with the simple thumb rule – price of the entire stock has to be less than what an investor would pay for the whole company.
Yacktman focuses on a limited number of companies as compared to other typical stock-mutual funds. They believe after reaching a certain stage, increased diversification leads to mediocre returns. Typically, they hold less than 25 stocks in a portfolio.
During the implementation of such a strategy, Yacktman waits for the right moment to buy-in when the stock of such listed companies is at a low price. There can be as much as 50% variation in the stock prices of many companies during an average year in the stock markets. The firm also follows a strict sale discipline – if the general annual returns of a company are less than 8% to 9% of the projected returns, those positions are sold to minimize possible losses.
In adherence with their overall investment strategy, Yacktman purchases stock when the markets take a plunge. Their allergy with technology stocks saved them form the disastrous effects of the dotcom bust in the year 2000 when many internet companies including some fraudulent ones went bust.
With the financial collapse in 2008, the fund did lose money but much less than that by the S&P 500 index. However, the falling market offered investment opportunities that Yacktman grabbed with both hands. Since this financial meltdown, Yacktman has consistently outperformed the market that is proof enough of the efficacy of his belief in small cap stocks with an enormous potential for growth.
Like most other successful investment managers, Mr. Yacktman Sr. made his fortune by swimming against the tide. Combined with tons and tons of patience, objective and detailed research, and trading at the correct time this makes Yacktman Asset Management a very effective investment manager, especially during financial hard times.
It’s frustrating in the sense that we look dumber than we really are . . . We own a lot of unpopular but profitable stocks: Donald Yacktman Resource Page
Back in 1987, the day of the 500 point decline, I started buying like crazy . . . I spent $40 million that day: Donald Yacktman Resource Page
We found what they’ve done in the past is a much better predictor of what they’re going to do in the future than what they say: Donald Yacktman Interview with GuruFocus – August 20, 2012
It is critical that investors recognize that no manager performs well in all environments: Donald Yacktman Interview with GuruFocus – August 20, 2012
We also like predictability. We prefer businesses that have fairly stable operating results in both good and challenging economic environments: Donald Yacktman Interview with GuruFocus – August 20, 2012