3Q24 Global Fund Commentary
Southeastern Asset Management is a Memphis-based deep-value firm founded in 1975 by O. Mason Hawkins to exploit the bargains left by the 1973-74 bear market. Its flagship Longleaf Partners Funds (launched 1987) invest employees' own money alongside clients'. Following Graham's discipline and its "Business, People, Price" framework, it runs concentrated books of 15-25 undervalued stocks held for the long term — famously closing funds to new investors when opportunities were scarce. CEO and Head of Research Ross Glotzbach now leads the firm, which publishes quarterly Longleaf fund commentaries and Research Perspectives notes.
In plain words
This is a quarterly update from the global fund at Southeastern (Longleaf Partners). In the third quarter of 2024, the fund did well, beating its benchmark by a wide margin. Most of its holdings—like Delivery Hero (a food delivery platform) and CNX Resources (a natural gas company)—are cheap relative to their true worth, and the market is starting to notice. The fund also has 11% in cash, meaning it's waiting for better opportunities. For ordinary investors, this shows that finding undervalued global stocks can still pay off. Worth a read because it demonstrates a disciplined, value-focused approach without hype.
Southeastern (Longleaf Partners) Global Fund Q3 2024 Report The fund returned 14.76% in the third quarter of 2024, significantly outperforming the FTSE Developed Index (6.35%) and the FTSE Developed Value Index (8.81%). The fund's P/V ratio is in the high 60% range, with the cash position rising to
Theme and Background
This chapter serves as the opening of Southeastern (Longleaf Partners) Global Fund’s third-quarter 2024 investment report, summarizing the fund’s quarterly performance, portfolio adjustments, and market environment. The report notes that despite elevated valuations for large global companies (especially in the U.S.), the fund constructs a unique portfolio through its global team, emphasizing that the valuation gap between its holdings and the index is at a historic high.
Core Views
The author’s core investment thesis is that the market is beginning to recognize the value of the fund’s holdings, as the fund significantly outperformed its benchmark index in the third quarter. A counterintuitive judgment is that although the fund’s annualized return since inception (5.94%) is notably lower than the FTSE Developed Index (10.89%), the author remains optimistic about the “historic valuation gap” between holdings and the index, believing that “signs of rationality” are emerging in the market.
Key Arguments and Data
Fund P/V ratio in the High-60s%, cash position at 11.3%, holding a total of 22 stocks
- Performance Comparison: The fund returned 14.76% in the third quarter, significantly exceeding the FTSE Developed Index (6.35%) and the FTSE Developed Value Index (8.81%).
- Holdings Performance: Over half of the holdings delivered double-digit returns, with only a few dragging performance.
- Cash Position: Due to reducing or selling some strong-performing stocks, the cash position rose to 11.3%.
- Valuation Metrics: The P/V ratio is in the high 60% range.
- Long-Term Performance: Since inception, the fund’s annualized return is 5.94%, below the FTSE Developed (10.89%) and FTSE Developed Value (8.23%).
Comparison Table of Top Five and Bottom Five Quarterly Contributors:
Global Fund returned 14.76% in Q3, 18.40% year-to-date, and 5.94% annualized since inception, significantly outperforming the benchmark index
| Company Name | Total Return (%) | Contribution to Portfolio (%) | Weight (%) |
|---|---|---|---|
| Top Five Contributors | |||
| Delivery Hero | 70 | 2.25 | 4.4 |
| Kellanova | 39 | 2.16 | 0.0 |
| CNX Resources | 34 | 1.97 | 6.4 |
| Eurofins | 29 | 1.47 | 5.6 |
| Prosus | 23 | 1.13 | 4.5 |
| Bottom Five Detractors | |||
| FedEx | -8 | -0.54 | 4.9 |
| MGM Resorts | -12 | -0.45 | 2.6 |
| Glanbia | -10 | -0.19 | 2.5 |
| Warner Music Group | -10 | -0.18 | 0.0 |
| Undisclosed | 0 | 0.00 | 1.9 |
Delivery Hero, with a 70% quarterly total return contributing 2.25%, ranks first among the top five contributors, which together contributed approximately 9%
Companies/Assets Involved
- Delivery Hero (Bullish): A German-listed food delivery company with strong Q2 results. It plans to list its Middle East platform Talabat by year-end (valuation could exceed 70% of its market cap) and sell its Taiwan business to Uber Eats. The author believes management is taking steps to unlock value.
- Kellanova (Exited): A packaged food company acquired by Mars at a price slightly above the fund’s valuation. The author views this transaction as one path to value realization and has exited with gains.
- CNX Resources (Bullish): A natural gas company whose low-cost structure and hedging strategy enable free cash flow generation across various price environments, used for share buybacks.
- Eurofins (Bullish): A global leader in laboratory testing services. Its stock rebounded strongly in Q3, and the author believes previous short-seller reports lacked industry understanding. The company benefits from organic growth and margin improvement in structurally growing sectors (biopharma, food, environmental testing).
- Prosus (Bullish): A global consumer internet group. Tencent (nearly 80% of its NAV) posted strong results, with Tencent repurchasing over HKD 60 billion year-to-date (planned HKD 100 billion). Prosus’s new CEO purchased a significant number of shares, with compensation tied to doubling the market cap.
- FedEx (Bearish): A global logistics company with disappointing Q3 results and the expiration of a U.S. Postal Service contract. The author believes its less-than-truckload business (FedEx Freight) is undervalued, and a spin-off or sale could unlock value (compared to Old Dominion, Saia).
- MGM Resorts (Bullish): A gaming and hospitality company whose stock fell 13% in Q3 due to earnings, but the author believes long-term earnings potential remains unchanged. The company continues buybacks and optimizes its online business.
FedEx, with an -8% quarterly total return dragging the portfolio by 0.54%, ranks first among the bottom five detractors, followed by MGM Resorts with a -12% return
Investment Implications
- Focus on Valuation Gap: The valuation gap between the fund’s holdings and the index is at a historic high. The author believes the market is gradually recognizing value, and investors can monitor similar undervalued global value stocks.
- Reduce Strong Holdings: The fund reduced or sold some strong performers (e.g., Kellanova) in Q3, with the cash position rising to 11.3%, suggesting the author is cautious about the short-term market and preserving ammunition for better opportunities.
- Structural Opportunities: Event-driven opportunities such as Delivery Hero’s Talabat IPO and FedEx Freight’s potential spin-off are worth tracking, as they may lead to value revaluation.
- Long-Term Holding Logic: Companies like CNX Resources and Eurofins, with low costs or industry dominance, can generate free cash flow across different environments, making them suitable for long-term holding.