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Tracking Southeastern Asset Management Portfolio – Q4 2021 Update (MUTF:LLGLX)

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This article is part of a series that provides an ongoing analysis of the changes made to Southeastern Asset Management’s 13F portfolio on a quarterly basis. It is based on Southeastern’s regulatory 13F Form filed on 2/15/2022. Please visit our Tracking Mason Hawkins’ Southeastern Asset Management Portfolio series to get an idea of their investment philosophy and our previous update for the fund’s moves during Q3 2021.

This quarter, Southeastern’s 13F portfolio value increased ~13% from $5.27B to $5.96B. The number of holdings increased from 28 to 33. The top three holdings are at ~27% while the top five are at ~39% of the 13F assets: Lumen Technologies, Mattel, CNX Resources, FedEx, and Hyatt Hotels.

Southeastern is best known for its investor friendly attributes. The mutual funds in the Longleaf family are Longleaf Partners Fund (LLPFX) incepted in 1987, Longleaf Small-Cap Fund (LLSCX) incepted in 1989, Longleaf International Fund (LLINX) incepted in 1998, and the Longleaf Global Fund (LLGLX) incepted in 2012. The flagship Longleaf Partners Fund returned 23.58% for 2021 vs 28.71% for S&P 500 index. Annualized returns since the 1987 inception is 10.10%. Although, the fund is focused on US mid-and-large cap businesses, the current allocation has two non-US businesses among the top holdings: Holcim (OTCPK:HCMLY) and CK Hutchison (OTCPK:CKHUY). Cash allocation is ~8%, down from an average of ~15% for the year.

Note 1: Regulatory filings since the quarter ended show them owning 6.84M shares (6.7% of the business) of Millicom International Cellular (TIGO).

Note 2: Although their mutual funds are well known among retail investors, it should be noted that a sizable portion of Southeastern’s AUM (~$11B total) is attributable to separately managed accounts.

New Stakes:

Biogen (BIIB), Liberty Broadband (LBRDK), and Fiserv (FISV): These are the new positions this quarter. The fairly large 3.46% of the portfolio position in BIIB was purchased at prices between ~$224 and ~$288 and the stock currently trades well below that range at ~$197. The 2.38% of the portfolio LBRDK stake was purchased at prices between ~$148 and ~$177 and it is now below that range at ~$139. FISV is a 1.28% of the portfolio position established at prices between ~$96 and ~$111 and it now goes for ~$96.

Note: Their Q4 2021 letter discussed these stakes. Biogen was bought in December below their previous purchase in Jan 2021. That stake was disposed after a price spike in June. Their Comcast position was disposed and exchanged for Liberty Broadband based on a relative undervaluation thesis. They are in the process of building a stake in Fiserv after following the company for a decade.

Oscar Health (OSCR), Vimeo Inc. (VMEO), White Mountains Insurance (WTM), and XPO Logistics (XPO): These are very small (less than ~1.2% of the portfolio each) stakes established this quarter.

Note: They have a 5.2% ownership stake in Oscar Health.

Stake Disposals:

Baidu Inc. (BIDU): BIDU was a very small 1% of the portfolio position as of Q1 2018. The four quarters thru Q1 2019 saw the position doubled at prices between $155 and $280 and that was followed with another ~35% increase in Q1 2020 at prices between $108 and $185. The four quarters through Q1 2021 had seen a one-third selling at prices between ~$95 and ~$340 while next quarter there was a ~25% stake increase at prices between ~$179 and ~$227. Last quarter saw a ~40% reduction at prices between ~$137 and ~$202. The position was disposed this quarter at prices between ~$136 and ~$181. The stock currently trades at ~$108.

Eastman Kodak (KODK): The minutely small 0.33% stake in KODK was disposed this quarter.

Note: Southeastern has a ~10.6% ownership stake in Eastman Kodak (9.35M in preferred shares that are not in the 13F report). Over 30M shares in convertible debt were converted and sold in August 2020 to take advantage of a price spike.

Stake Decreases:

Lumen Technologies (LUMN) previously CenturyLink: LUMN is currently the largest 13F position at ~14% of the 13F portfolio. It came about as a result of the acquisition of Level 3 Communications by CenturyLink that closed in October 2017. Southeastern had a huge 28M share stake in Level 3 for which they received ~40M CenturyLink shares in the ratio 1:1.4286. The terms called for $26.50 per share in cash as well. The position was increased by ~75% in Q4 2017 at prices between $13.50 and $20.50. The stock is now at $10.78. Last several quarters have seen only minor activity.

Note: Their cost-basis on the position is ~$16. Southeastern has a ~6% ownership stake in CenturyLink.

CNX Resources (CNX): CNX is a top-three 6.34% of the 13F portfolio stake. The original position was from 2012 when ~25M shares were purchased in the high-20s price range. Q4 2014 & Q1 2015 saw a stake doubling at prices between $24 and $39. There was a ~18% stake increase in Q2 2019 at prices between $6.15 and $10.90. Q2 2020 saw a ~25% selling at prices between $5.50 and $13. Q1 2021 saw another ~17% selling at prices between ~$11 and ~$15.75. The stock is now at $17.84. There was marginal trimming in the last two quarters.

Note: The prices quoted above are adjusted for the coal spin-off in November 2017. Southeastern has a ~13% ownership stake in CNX Resources.

Hyatt Hotels (H): Hyatt Hotels is a 5.24% of the portfolio stake established in Q1 2020 at prices between $36.50 and $93. Q2 2020 saw a ~50% stake increase at prices between $40 and $67.50. That was followed with a ~27% increase next quarter at prices between ~$48 and ~$61. The two quarters through Q1 2021 had seen a ~23% selling at prices between ~$66 and ~$91. Last quarter saw a ~18% stake increase while this quarter there was a similar reduction. The stock now trades at $90.70.

Note: They have a ~6.5% ownership stake in the business.

Affiliated Managers Group (AMG): The 4.24% AMG stake was purchased in Q3 2018 at prices between $137 and $160 and increased by ~55% next quarter at prices between $90 and $138. 2019 had seen a ~25% selling at prices between $75 and $116. There was a ~15% stake increase in Q4 2020 at prices between ~$67.50 and ~$102 while next quarter there was a ~20% selling at prices between ~$99 and ~$152. Q2 2021 saw a similar increase at prices between ~$149 and ~$175. The stock is now at ~$130. Last two quarters have seen only minor adjustments.

Lazard Ltd (LAZ): The LAZ position was a very small stake first purchased in Q3 2018. Next quarter saw the position built to a 2.17% portfolio stake at prices between $34 and $48. 2019 saw a ~50% stake increase at prices between $31 and $40.50. The three quarters through Q1 2021 had seen a ~35% selling at prices between ~$27 and ~$47. Last two quarters had seen a ~25% stake increase at prices between ~$43 and ~$49. The stock currently trades at ~$33 and the stake is at 4.23% of the portfolio. There was marginal trimming this quarter.

Note: They have a 5.1% ownership stake in the business.

Williams Companies (WMB): WMB is a 3.17% of the portfolio stake purchased in Q4 2019 at prices between $22 and $24 and increased by roughly two-thirds next quarter at prices between $9.25 and $24. Q2 2020 saw a ~30% selling at prices between $13.30 and $21.60. Last six quarters have also seen trimming. The stock currently trades at ~$31.

Douglas Emmett (DEI): DEI is a ~3% of the portfolio stake established in Q4 2020 at prices between ~$23.25 and ~$33.30 and the stock currently trades at $32.53. There was a one-third stake increase in Q2 2021 at prices between ~$31.40 and ~$36.75. Last two quarters have seen only minor adjustments.

Note: the Q4 2020 commentary talks about this investment – they had followed the business since 2011 and they pulled the trigger as the COVID “death of office space” narrative opened up an opportunity to acquire a position at a good price.

Empire State Realty (ESRT): The 2.27% ESRT stake was built in H1 2020 at prices between $6.50 and…

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