1Q23 International 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 report covers a global fund's performance in early 2023. It returned 12.3%, beating its benchmark. The biggest winners were European and Asian companies where management took bold steps—like Millicom, a Latin American telecom that jumped 50% after takeover interest, and Accor, a French hotel chain that sold its stake in a Chinese partner and split its business, rising 30%. For everyday investors, the takeaway is to look for companies where leaders are actively reshaping the business (selling assets, splitting units, buying back stock). Japan is also showing similar positive moves worth watching.
Longleaf Partners International Fund returned 12.30% in the first quarter of 2023, outperforming the FTSE Developed ex North America Index's 8.05%. European holdings performed notably well, while Asian consumer sentiment rebounded strongly following the reopening. China was the only major economy to
Theme and Background
This section primarily discusses the performance and investment environment of the Longleaf Partners International Fund in the first quarter of 2023. The report notes that European holdings performed prominently, Asian consumer sentiment rebounded strongly after the lifting of lockdowns, and China was the only major economy to ease regulations, fiscal policy, and monetary policy, contrasting with the tightening measures in other economies.
Core Views
The author's core investment thesis is that management teams in Europe and Asia are creating value through strategic actions, effective capital allocation, and governance improvements, driving market value recognition, particularly in stocks that were overly penalized in 2022. The counterintuitive judgment is that despite macroeconomic and geopolitical headwinds in Europe in 2022, individual stock fundamentals in the first quarter of 2023 were already reflected in strong share price performance.
Key Arguments and Data
The fund's P/V ratio is in the mid-60% range, with cash at 1.9% and a total of 25 holdings
- The fund returned 12.30% in the first quarter, outperforming the FTSE Developed ex North America Index's 8.05%.
- The top five contributors included Millicom (return of 50%, portfolio weight 4.2%), Accor (30%, 5.3%), Richemont (25%, 4.9%), Kering (29%, 3.5%), and Glanbia (15%, 5.7%).
- Millicom was the largest contributor due to acquisition interest from Apollo Global Management and Xavier Niel (who holds a 21% stake through Atlas Investissement).
- Accor sold its remaining stake in H World, generating a $1 billion capital gain; management split Accor into Luxury & Lifestyle (which sold a 10% stake at 18x EBITDA) and Economy & Mid-Scale businesses, with market peers trading at 16-20x EBITDA, a premium of over 40% compared to Accor.
- Richemont's jewelry brands (Cartier and Van Cleef & Arpels) achieved 8% same-store sales growth in the fourth quarter, despite the impact of lockdowns in Russia and China.
The International Fund returned 12.30% in the first quarter, 3.81% over one year, and an annualized return of 6.13% since inception, outperforming the benchmark FTSE Developed ex North America
Comparative data presented in a table:
| Company | Quarterly Return | Portfolio Weight | Key Drivers |
|---|---|---|---|
| Millicom | 50% | 4.2% | Acquisition interest (Apollo, Xavier Niel holds 21% stake) |
| Accor | 30% | 5.3% | Earnings beat, sale of H World stake, business split |
| Richemont | 25% | 4.9% | China reopening expectations, sustained demand for jewelry brands |
| Kering | 29% | 3.5% | China reopening expectations, strong brand demand |
| Glanbia | 15% | 5.7% | Not detailed |
Millicom ranked first with a 50% quarterly return and a contribution rate of 1.68%, with the top five contributors collectively contributing approximately 5.86%
Companies/Assets Involved
- Millicom (Latin American wireless and cable TV company): Bullish. Returned 50%, the largest contributor due to acquisition interest. The author believes it trades at very low multiples (free cash flow before cable and fiber growth capex) and still has significant upside.
- Accor (French hotel company): Bullish. Returned 30%, CEO Sébastien Bazin has a strong capital allocation track record, and the business split is expected to unlock value, with a market premium of over 40%.
- Richemont (luxury goods company): Bullish. Returned 25%, jewelry brands remain strong, and China's reopening is an additional tailwind.
- Kering (luxury goods company): Bullish. Returned 29%, driven by similar factors as Richemont.
- Glanbia: Bullish. Returned 15%, not detailed.
- New holding: A high-quality Japanese company with a global footprint, pricing power, and improving margins, whose CEO is focused on optimizing the business portfolio and balance sheet.
Eurofins and Lazard each fell 3%, ranking as the top decliners, dragging returns by 0.07% and 0.01% respectively, with the bottom five collectively dragging returns by approximately 0.09%
Investment Implications
- Investors should focus on companies in European and Asian markets where management is actively taking strategic actions (such as business splits, capital allocation optimization, and governance improvements), as these actions can catalyze value realization.
- Stocks that were overly penalized in 2022 (such as Millicom) may offer significant upside opportunities, especially when external acquisition interest or activist shareholder involvement emerges.
- The luxury goods sector (Richemont, Kering) benefits from China's reopening and global brand demand, with valuations still attractive.
- The Japanese market is seeing improved management behaviors (such as selling non-core businesses and share buybacks), which may create new investment opportunities.