Oak Value Fund Adds Activision Blizzard (ATVI) & Intuit (INTU): Investor Letter ~ market folly

Tuesday, January 19, 2010

Oak Value Fund Adds Activision Blizzard (ATVI) & Intuit (INTU): Investor Letter

We recently came across the fourth quarter 2009 investor letter from David Carr Jr's Oak Value Fund and thought our readers would enjoy it. After all, we like to track investment managers that employ fundamental research processes with a long-term time horizon. Oak Value certainly fits the bill, so let's see what they were up to in the fourth quarter of last year.

They made a few additions to their portfolio as they bought shares of Activision Blizzard (ATVI), Intuit (INTU), and XTO Energy (XTO). They added shares of ATVI because they believe this company is the industry leader in the subscriber-based revenue model of gaming. They were fond of Intuit because of its large consumer base, high operating profit margins, high returns on capital and significant free cash flow. Lastly, they purchased shares of XTO under the belief that natural gas is a viable energy alternative. Right after Oak Value's investment into XTO, Exxon Mobil came in with an offer to purchase the company.

Sales in their portfolio from the fourth quarter include Cadbury (CBY) and Syngenta (SYT). Their sale of Cadbury is notable because it appears they exited the position too soon as a potential deal has finally been struck between Cadbury and Kraft Foods. We've seen many hedge funds play both sides of this event-driven scenario as Bill Ackman's Pershing Square owns a lot of Kraft, as does legendary investor Warren Buffett. On the other side, we saw John Paulson's hedge fund Paulson & Co with a large Cadbury stake.

Oak Value sold their shares of Syngenta due to a decreased margin of safety as well as the fact that they saw more opportunistic areas to deploy their capital.

Here are Oak Value Fund's Top Ten Holdings as of December 31st, 2009:

  1. Berkshire Hathaway (BRK.A): 6.75%
  2. Avon Products (AVP): 5.5%
  3. Coach (COH): 5.47%
  4. American Express (AXP): 5.06%
  5. Oracle (ORCL): 4.85%
  6. Cisco Systems (CSCO): 4.57%
  7. Praxair (PX): 4.56%
  8. Republic Services (RSG): 4.54%
  9. Diageo (DEO): 4.31%
  10. 3M (MMM): 4.1%

Interestingly enough, one of their top 10 holdings is also on the list of most popular stocks held by hedge funds. Here is Oak Value Fund's fourth quarter 2009 letter to investors:

You can also download the .pdf of the letter here.

For background on Oak Value Fund, here's what you need to know: Taken from their website, they "approach investing with the philosophy, supported by a long historical background, that current market price is not always an accurate reflection of the true worth of a business. Our essential investing premise is that we can be successful over time by buying high quality companies with solid competitive advantages, run by capable, fair-minded management teams, purchased at sizable discounts from their intrinsic values."

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