Tweedy Browne: We Are in the Early Stage of Value’s Resurgence

Tweedy, Browne Company LLC, based in Stamford, CT, is a value-based asset manager with an investment philosophy based on the work of Benjamin Graham. It was originally a broker, and one of its clients was Graham, co-author and author of the seminal textbooks on value investing: Security Analysis (1934) and The Intelligent Investor (1949). The firm also had brokerage relationships with Walter Schloss and Warren Buffett.

As of May 31, 2021, its flagship fund, the Tweedy, Browne International Value Fund (TBGVX; it was previously called the Tweedy, Browne Global Value Fund until its name was changed effective July 29), has returned 8.97% annually since its inception in 1993. That is 249 basis points better than the hedged MSCI EAFE index and 212 basis points better than the foreign stock fund average (which is calculated by Tweedy, Browne based on data provided by Morningstar and reflects average returns of all mutual funds in the Morningstar Foreign Large-Value, Foreign Large-Blend, Foreign Large-Growth, Foreign Small/Mid-Value, Foreign Small/Mid-Blend, and Foreign Small/Mid-Growth categories).

I interviewed seven members of Tweedy Browne’s investment team: Tom Shrager, Bob Wyckoff, Roger de Bree, Frank Hawrylak, Jay Hill, Sean McDonald and Andrew Ewert.

The interview took place on June 22, 2021, over Zoom. I previously interviewed several members of the investment committee at Tweedy, Browne on February 5, 2019, when we discussed their investment philosophy, how they differentiate themselves, and their views on currency hedging. Please refer to that interview for information on those topics.

In your March 31 letter to shareholders, you noted the strong performance of your funds: “For the last two quarters cumulatively, all four Tweedy, Browne Funds produced returns of roughly 20% or more and outpaced their benchmark indices by 25 to as much as 364 basis points. They outpaced growth-oriented indices by an even more substantial margin, which contributed to absolute returns for all four Funds of between 33.8% and 40.9% for the full fiscal year.” Congratulations. In your letter, you discussed the relative outperformance of growth over value and the fact that such extremes have historically been followed by strong results for value. Where does that transition from growth to value stand, and how big a role has that played in your funds’ results?

Bob Wyckoff: When the vaccines were announced last November with 95% efficacy, it sparked a strong stock market reaction. We had very strong equity markets in November. We had particularly strong markets on the value side. Investors began to look forward to reopening the economy, and robust growth in the near term in some of the more traditional parts of the economy, as opposed to the stay-at-home economy, which was largely led by big tech.

November was one of our strongest months of performance in our history at Tweedy. That has largely held since November. In fact, in both the fourth quarter and the first quarter of this year, value has significantly outperformed growth by nearly double. In the current quarter (April 1, 2021 to date), there's been a continued tug of war between the value trade and the so-called growth-tech trade. Technology, over the last few weeks, has had a bit of a comeback in the equity market. But in our view, the so-called value rotation may persist over time.

We have no idea whether this rotation is sustainable, or how long it will last. But the past is often prologue when you see periods of extreme outperformance for one style over the other. When you look at 2020 in the global developed MSCI world index, the growth component outperformed the value component by approximately 3,500 basis points. That gap has rarely if ever been wider. You'd have to go back to the tech bubble of 2000 to see comparable numbers. Of course, we know what happened in March of 2000 – the tech bubble began to burst and over the next several years we had two to three years of significant outperformance by value.

Is it going to play out the same way this time? It's hard to know. There's a good bit that feels similar to the tech bubble, such as concentration of returns in tech and rampant speculation in a plethora of money-losing, tech-related companies, but we'll have to see.