Sequoia Fund Q4 Letter: New Positions in a2Milk, Electronic Arts & Melrose

Ruane, Cunniff & Goldfarb is out with its Q4 letter for 2018.  Their Sequoia Fund finished the year -2.62% compared to -4.38% for the S&P 500.

New Positions in a2Milk, Electronic Arts & Melrose

During the quarter, the fund started 3 new positions.  Here's their thesis on a2Milk, a premium milk and baby formula producer in New Zealand:

"A good analogy here is Greek yogurt, which is believed in some quarters to confer health benefits you can’t get from regular yogurt. While Greek yogurt, like A2 milk, is a commodity product, companies like Fage and Chobani have built big businesses by wrapping compelling brands around it. a2Milk is attempting to do the same thing, to great effect thus far. Riding powerful consumer trends favoring products perceived to be healthy and natural, a2 has become the leading premium milk brand in Australia while making rapid inroads into the massive and quality-obsessed infant formula market in China. An effort to penetrate the U.S. milk market is also showing early promise."

Their new stake in Electronic Arts is a bet on gaming.  Games are taking more of people's time and are becoming more expensive to produce, favoring deep-pocketed companies like EA who have scale.  Sequoia feels the trends of digital game delivery and in-game purchases will benefit them.

Sequoia's bet on Melrose, on the other hand, is a bet on the jockey.  They write,

"Melrose is essentially a publicly-traded private equity firm, but with some very unusual twists. It mostly avoids borrowed money, focuses on only a small handful of investments at any given time and eschews dedicated funds that create a compulsion to invest without regard for the quality of the opportunities on offer. As with Berkshire and Constellation Software, the combination of a differentiated approach and a talented team has enabled Melrose to compile a hugely impressive long-term record of value creation. The company has never lost money on any of its realized investments, and in aggregate, it has produced an IRR of 24% per annum. At present, the company owns a collection of manufacturing businesses in the U.S. and Europe that span the aerospace, automotive and HVAC industries. In aggregate, they’re unlikely to grow any faster than the overall economy, but we think Melrose can make them substantially more profitable, and we ultimately expect management to sell them at attractive prices, freeing up time and capital for new opportunities."


Sold Almost All Of Their TJX Stake

During the fourth quarter they also sold almost all of their TJ Maxx (TJX) position.  This is notable as they first bought shares almost 20 years ago.  While the company is still operating well, they feel the future of the stock and business is less exciting as the PE ratio roughly double what they originally paid.

The letter also touches on 3 stocks that performed poorly for them last year that they still own: Mohawk (MHK), Naspers, and Charles Schwab (SCHW).

Embedded below is Sequoia Fund's Q4 letter:



You can download a .pdf copy here.

For more fund letters, be sure to check out excerpts from Baupost Group's Q4 letter as well as Oaktree Capital's Howard Marks latest letter.

Graham & Doddsville New Issue: Lee Cooperman, David Poppe, John Harris & More

The Winter 2018 issue of Columbia Business School's Graham & Doddsville newsletter is out.  It features interviews with Lee Cooperman of Omega Advisors as well as David Poppe and John Harris of Ruane, Cunniff & Goldfarb.  Also, they talk with Vulcan Value Partners' C.T. Fitzpatrick, as well as Seth Fischer of Oasis Management.

Cooperman talked about the market's run: "I believe we're adequately priced.  I think we're heading to a normalization.  We have been living through a very strange period."  He doesn't see euphoria in the market yet, though notes everyone expects the market to head higher.  He pointed to 1987 as an example where the market traded at 27x earnings.

The gentlemen from Ruane Cunniff talked about their investment in Alphabet (GOOG) which they recently bought more or and it's now around 10% of their fund.  They also touched on their thesis on Credit Acceptance Corp (CACC).  (We recently posted Sequoia Fund's Q4 letter here.)

The issue also includes student investment pitches including long Staples 8.5 2025 unsecured notes, long FleetCor Technologies (FLT), and long First Data (FDC).

Embedded below is the Winter 2018 issue of CBS's Graham & Doddsville newsletter:



You can download a .pdf copy here.

Sequoia Fund Q4 Letter: Added to Alphabet, Exited Fastenal & Danaher

Ruane, Cunniff & Goldfarb is out with Sequoia Fund's fourth quarter letter.  They returned 20.07% for the year.

At the end of 2017, their top 10 holdings were:

1. Berkshire Hathaway (BRK)
2. Alphabet (GOOG)
3. Mastercard (MA)
4. Constellation Software (CSU)
5. Dentsply Sirona (XRAY)
6. TJX Companies (TJX)
7. Rolls Royce (RR.LN)
8. Charles Schwab (SCHW)
9. CarMax (KMX)
10. Liberty Media

They exited positions in Fastenal (FAST), Danaher (DHR), Emcor, Croda, Tiffany (TIF), and Costco (COST).  They've also trimmed stakes in BRK, MA, O'Reilly (ORLY), Waters, and TJX.

They've added to positions in GOOG, Hiscox, Jacobs, Omnicom, and Wells Fargo.  They've also started new investments in Credit Acceptance (CACC) and Royal Vopak, Priceline (PCLN).

They've been concentrating their portfolio a bit more, and their cash levels have gone down some.

Embedded below is Sequoia Fund's Q4 letter:



You can download a .pdf copy here.

For other recent fund letters, we've also posted Greenlight Capital's Q4 letter.

Ruane Cunniff (Sequoia Fund) Investor Day Transcript 2017

Ruane, Cunniff & Goldfarb recently released the transcript from their investor day a few months ago.  Known as the managers of the Sequoia Fund, David Poppe and his team talk about many of their investments.

As of the end of June, their top ten holdings were:

Berkshire Hathaway (BRK A / BRK B) 11.28%
US Treasury Bills & Cash 8.65%
MasterCard (MA) 7.72%
Alphabet (GOOGL & GOOG) 6.5%
TJX (TJX) 5.93%
Dentsply Sirona (XRAY) 5.3%
Carmax (KMX) 5.04%
Constellation Software (CSU) 4.83
Rolls Royce (RR.LN) 4.74%
Liberty Media Corp 4.13%

They talked about what they often find in their top investments:

"Hopefully that gives you a sense of the kinds of companies we want to buy: high-quality enterprises trading at discounts to their intrinsic value, with long-duration growth opportunities.  I would note that every great outperformer we have purchased during my eighteen years here - from Fastenal to Idexx to Mastercard to O'Reilly to Precision Castparts to Sirona to TJX - had something in common.  And it was not a low P/E at the time we first invested.  It was a long growth runway and, most often, a long organic-growth runway."

The transcript that follows touches on their thoughts on Priceline.com (PCLN), the threat of Amazon (AMZN) to various businesses, and some of their holdings like TJX and O'Reilly Auto, as well as other positions like Rolls Royce and Charles Schwab.

Embedded below is Sequoia Fund / Ruane Cunniff's 2017 Investor Day Transcript:




You can download a .pdf here.

For more from this firm, you can view their transcript from last year here as well.

Ruane Cunniff (Sequoia Fund) Investor Day Transcript 2016: Rolls Royce, Valeant & More

Ruane Cunniff Goldfarb, managers of the Sequoia Fund, recently released the transcript from its investor day.  In it, they talk about many of their investments.

Their top ten holdings as of the end of the second quarter were:  Berkshire Hathaway (BRK.A/B), TJX Companies (TJX), MasterCard (MA), Alphabet (GOOG/L), O'Reilly Auto (ORLY), Mohawk Industries (MHK), Fastenal (FAST), Rolls Royce (RR.L), Constellation Software (CSU.T), and Dentsply Sirona (XRAY).

They outline their thinking on Rolls Royce and also address the Valeant Pharmaceuticals (VRX) saga, which they no longer own.

Embedded below is the transcript of Ruane Cunniff's 2016 Investor Day:



You can download a .pdf copy here.

Ruane Cunniff Dumps Half of Valeant Pharmaceuticals Stake

Ruane Cunniff & Goldfarb, managers of the Sequoia Fund and one of the longstanding holders of Valeant Pharmaceuticals (VRX) reported they've sold almost half of their stake, per a just filed 13G with the SEC.

They now own 4.72% of the company with only 16.11 million shares.  This is down from the 30.30 million VRX shares they owned at the end of the first quarter.

The filing was made due to activity on May 31st.

We've highlighted this ongoing saga and other investors involved include Jeff Ubben's ValueAct Capital, and much more recently Bill Ackman's Pershing Square.

Per Google Finance, Valeant is "a specialty pharmaceutical and medical device company. The Company is engaged in developing, manufacturing, and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. The Company operates through two segments: developed markets and emerging markets. The Company's developed markets segment consists of sales in the United States of pharmaceutical products, OTC products, and medical device products. The Company's Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products.."

Sequoia Fund Investor Day Transcript 2015 (Ruane Cunniff & Goldfarb)

Ruane Cunniff & Goldfarb recently released their Sequoia Fund investor day transcript for 2015.  While the event took place back in May, it's still interesting to get their insight on their investments given their long term focus.

Sequoia Fund's investment management team discussed their thesis and outlook on numerous portfolio companies, including Valeant, Google, Mohawk, Idexx, Fastenal, Rolls Royce, TJX, O'Reilly, and many more.

At the end of the second quarter, Sequoia Fund's top holdings were:

Valeant Pharmaceuticals (VRX): 28.7% of portfolio
Berkshire Hathaway (BRK.A/B): 10.6%
TJX Companies (TJX): 5%
O'Reilly Automotive (ORLY): 4.3%
Fastenal (FAST): 4.2%
MasterCard (MA): 3.2%
Precision Castparts (PCP): 2.7%
Mohawk Industries (MHK): 2.5%
Idexx Laboratories (IDXX): 2.3%
Google (GOOGL): 2% 

This really is an interesting read in its entirety given their candidness about assessing their positions.

Embedded below is Sequoia Fund's investor day transcript for 2015:



You can download a .pdf copy here.

Sequoia Fund's 2014 Year-End Letter

Ruane Cunniff & Goldfarb is out with its 2014 year-end letter for its Sequoia Fund.  They returned 7.56% for the year and run a pretty concentrated portfolio of large bets.  At the end of the year, their largest holdings were: Valeant Pharmaceuticals, Berkshire Hathaway, TJX, Fastenal, O'Reilly Automotive, Mastercard, and Idexx Labs.

Their letter also outlines their latest thinking on the above companies, as well as some of their new positions like Richemont, Cabela's, and Constellation Software.

Embedded below is Sequoia Fund's 2014 annual report:



You can download a .pdf copy here.

Sequoia Fund Investor Day Transcript 2014

Today we wanted to highlight the transcript from Sequoia Fund's investor day earlier this year.  This is old (6 months ago) but is still worth reading due to the in-depth color they provide on their investments and the fact that they're long-term shareholders so most of the positions still remain in their portfolio.

Positions they talk about include Valeant Pharmaceutical (VRX), Allergan (AGN), Google (GOOGL/GOOG),  Mastercard (MA), TJ Maxx (TJX), Omnicom (OMC), IBM (IBM), Ritchie Brothers (RBA), Fastenal (FAST), Costco (COST), Berkshire Hathaway (BRK.A/B), O'Reilly Auto (ORLY), Rolls Royce (LON:RR), Precision Castparts (PCP), and more.

Embedded below is the Sequoia Fund's Investor Day Transcript: 



You can download a .pdf copy here.

And given their long-term focus, we'd also point you to Sequoia Fund's 2013 investor day transcript as well as Sequoia Fund's 2012 annual letter if you haven't read those either.

Sequoia Fund's Investor Day Transcript: Valeant Pharmaceuticals, Google, Sirona Dental Systems & More

Ruane Cunniff Goldfarb's Sequoia Fund had its investor day earlier this summer and they finally released a transcript of the event. 

In it, they talk about their big position in Valeant Pharmaceuticals (VRX) numerous times.  Just keep in mind that since their investor day, Valeant has acquired Bausch & Lomb. 

Sequoia Fund managers also talked about their investment thesis on World Fuel Services (INT), Ritchie Brothers (RBA), Sirona Dental Systems (SIRO), Google (GOOG), Rolls-Royce, Advance Auto Parts (AAP), O'Reilly (ORLY) and many other stocks.

Additionally, the portfolio managers talked about their investment process and how they value companies.

Embedded below is Sequoia Fund's annual investor day transcript.  It's an in-depth read that we highly recommend:




You can download a .pdf copy here.

Ruane Cunniff Goldfarb: Sequoia Fund Annual Letter 2012

Catching up on a few more notable 2012 annual letters, we turn next to the Sequoia Fund run by Ruane Cunniff & Goldfarb.  An investment of $10,000 at inception in 1970 has grown to over $2.89 million as of the end of 2012.  They returned 15.68% in 2012.


Key Takeaways

- They currently don't see many compelling investment opportunities.  Began 2012 with 21% cash position, ended the year with 16%

- "In the fourth quarter of 2012, we were modest net sellers of equities for the first time since 2008, in response to specific situations at several of our portfolio holdings."  They exited Target (TGT) and Becton Dickinson (BDX).

- "Valuations for stocks are heavily influenced by interest rates, and particularly by the risk-free rate of return on 10-year and 30-year United States Treasury bonds. Relative to the current return on Treasury Bonds, stocks continue to be quite attractive.However, the current risk-free rate of return is not a product of market forces.  Rather, it is an instrument of Federal Reserve policy."


Top Holdings At 2012 Year-End

1. Valeant Pharmaceuticals (VRX): 11.6% of assets
2. Berkshire Hathaway (BRK.A): 10.9%
3. TJX (TJX): 7.5%
4. Fastenal (FAST): 5.6%
5. Mohawk Industries (MHK): 4.0%
6. Idexx Laboratories (IDXX): 3.2%
7. Advance Auto Parts (AAP): 3.1%
8. Precision Castparts (PCP): 3.1%
9. Rolls-Royce (LON:RR): 3.0%


Embedded below is Ruane Cunniff's annual letter from the Sequoia Fund where they go into detail about some of their positions and overall market views:




For more on this fund, late last year we posted up why Ruane Cunniff likes Valeant Pharmaceuticals.