Yacktman Fund Rises When Stock Market Falls

(Editor's note: TheStreet today named 111 mutual funds and exchange traded funds, or ETFs, winners and runners-up in its first annual awards ceremony. A list of the funds and related articles can be found on the awards page.)

BOSTON ( TheStreet) -- The Yacktman Fund's ( YACKX) three managers have been on boards of publicly traded companies, giving them an insight that most of their peers in the investment industry lack.

"We've seen companies from the inside," says fund manager Donald Yacktman, who's managed money for more than four decades. "Learning the business model and learning how to value it are the critical variables."
Donald Yacktman: 'The starting point of any investment is the price.'

For the Yacktman Fund's managers, who also include Donald's son Stephen Yacktman and Jason Subotky, the top objectives are patience and diligence. They seek long-term capital appreciation with some attention focused on current income, combining the best features of growth and value investing.

Yacktman Fund gets a "buy" rating and a five-star grade from TheStreet Ratings, which indicates the fund has an excellent track record for maximizing performance while minimizing risk. Because of that, the Yacktman Fund won TheStreet's 2011 Best Mutual Fund award for the large-cap core category. The runner-up was Parnassus Workplace Fund ( PARWX), run by Jerome Dodson.

"Ultimately, this business boils down to what you buy and what you pay for it," Donald Yacktman says by phone from his office in Austin, Texas. "The starting point of any investment is the price."

The Yacktman Fund returned an annual average of 9.9% in the three years through Dec. 31, even though the broader stock market plummeted almost 40% in 2008. It's up 5.8% this year. A hypothetical $10,000 investment made 10 years ago would have grown to $32,370 as of March 31.

"For our shareholders, it's not a function of making 12% a year. It's about how we got to the 12%," says Stephen Yacktman. "It matters that you didn't take massive, outsized, leveraged risks. It matters that it's not one big, giant position. In other words, the performance needs to be stable in a fairly diversified way so you don't need to wake up worrying."

The Yacktman Fund performed better than the broader stock market during the sharp downturns in 2008 and 2002. Both the Yacktman Fund and Yacktman Focused Fund ( YAFFX) widely outperformed during market declines sparked by the dot-com bubble of 2002 and the last recession in 2008 and 2009.

"We moved to securities where we thought the forward rate of return had become significantly higher," says Subotky. "The risk level might have been a bit higher, but the opportunities were overall much better."

Subotky pins the fund's success on its flexibility. "We have on a limited basis bought fixed-income securities," he says. "If we see equity-like rates of return and much better risk management in those type of securities, we're willing to go there."

The fund's outperformance is surprising given some of its largest holdings. Yacktman isn't afraid of a concentrated strategy, as the two largest holdings in the fund, News. Corp ( NWSA) and PepsiCo ( PEP), account for more than 20% of the portfolio's weighting.

The fund's other top holdings are contrarian picks that run the gamut of sectors, from consumer discretionary to health care to information technology to energy. They include Procter & Gamble ( PG), Coca-Cola ( KO), Sysco ( SYY), Pfizer ( PFE), Johnson & Johnson ( JNJ), Microsoft ( MSFT), ConocoPhillips ( COP) and Viacom ( VIA.B).

The managers target share price, the business itself and management. "As you slant the probabilities in your favor and have patience, things will work out," Yacktman says. "It's similar to going to a casino's blackjack tables and you have 21 with the dealer showing 16."

TheStreet awarded "Best Mutual Funds and ETFs 2011" to 111 funds, half of which were winners in their investment category and half runners-up. The criteria are as follows: Mutual funds must have had a three-year history as of Dec. 31 and been open to new client investments, with the minimum not exceeding $100,000. Closed-end funds and ETFs must have had a one-year track record. The rating is based equally on performance and risk. Emphasis is given to longer-term performance, based on total returns minus expenses. Risk measures include standard deviation, size of peak-to-trough (drawdown factor) and duration.

-- Written by Robert Holmes in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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