COLOMBO: Longleaf Partners Fund delivered a hefty 11.07% in the third quarter, taking the year-to-date (YTD) return to 18.32%. In spite of above normal cash levels, our results far surpassed the S&P 500 Index’s 3.85% return for the last three months and 7.84% for 2016. Over the last twelve months, the Fund has more than doubled our annual absolute goal of inflation plus 10% and outperformed the index.
The sustained environment of slow economic growth and low interest rates has reduced capital costs associated with acquisitions and spurred consolidation that can increase not only revenues but margins. Most of our companies were positive contributors this quarter. Actual or anticipated successful integration of mergers and acquisitions, along with transactions that strengthened balance sheets, helped drive our strong performance.
Chesapeake Energy sold assets and bought debt below face value. LafargeHolcim also reduced debt through asset sales and captured synergies from last year’s merger. FedEx raised guidance in anticipation of the benefits from its TNT acquisition and raised margins in its Ground and Express divisions. CK Hutchison gained approval for a merger that will create the largest mobile phone operator in Italy.
Capable management partners deserve particular credit for achieving returns of this magnitude when economic growth rates are not powering earnings. Assessing and engaging with managements is an important part of our process with an emphasis on capital allocation options. We are gratified by the strong execution of our CEOs and boards as they focus on building value per share.
