Managed by veteran Francis Chou, this concentrated portfolio holds just 17 stocks, and nearly 30% in cash. The high cash weight is the byproduct of Mr. Chou’s disciplined, deep value approach. Philosophically, he would rather hold cash than pay what he believes to be too much for a stock.
The portfolio looks much different than its index, with a very cyclical bent to it. Approximately a third is invested in financials, 15% in consumer cyclicals, and 11% in materials, with the rest in telecom and healthcare names.
While shorter term performance has been all over the map, the longer term numbers are very impressive. For the past 15 years, it has gained nearly 10% per year, handily outpacing its global equity peers.
Recent performance has been extremely disappointing, largely because the high cash balance has dragged in a rising market. Given the process used by Mr. Chou, this is not an uncommon occurrence, highlighting why I believe it to be more of a specialty fund rather than a core holding. Still, if you can stomach the disconnect between the performance of this fund and the index, it can be a nice addition to an otherwise well diversified portfolio.