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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Longleaf Partners Small Cap Fund reopens to new investors

edited May 3 in Fund Discussions
(Closed to new investors is no longer indicated in the SAI or flyer from Southeastern Asset Management or its website)

https://www.sec.gov/Archives/edgar/data/806636/000119312520128249/d882131d497k.htm

Purchase and Sale of Fund Shares
Minimum investment

•$10,000 initial purchase

•No minimum for additional purchases


https://southeasternasset.com/investment-offerings/longleaf-partners-small-cap-fund/

website: https://southeasternasset.com/

Here is an excerpt from the LLSCX SAI from 5/1/19:

Purchase and Sale of Fund Shares
Minimum investment

•$10,000 initial purchase (closed to new investors)

•No minimum for additional purchases

Comments

  • If anyone had a choice, which currently we don't, would you rather have the Longleaf small cap fund, or the Vulcan Value small cap fund considering CT Fitzpatrick was one of the 3 main guys who built a great record at Longleaf before he left to start Vulcan Value? Vulcan Value small cap is still closed.
  • edited May 3
    Tough choice, but isn't LLSCX more mid-cap blend, while Vulcan small cap is more small cap blend? Guess it depends what you are looking for?

    I do own Vulcan Value Small Cap fund.
  • According to M*, Longleaf's current portfolio is true small cap value and it has 63% small cap while VVPSX only has 45%. Historically, back to the beginning of 2010, the 2 funds have performed almost identically, but over that time VVPSX has led almost all of the time. It gave their lead back in the last few months. Therefore, Longleaf's risk-adjusted returns are just a little better. I have a small investment in VVPSX too and I like it a lot but I was hoping someone might have more insight than just the numbers.
  • edited May 3
    I think JSCVX might be a better small-cap value play in this environment as it has a quality tilt. It's also more diversified and has less idiosyncratic individual stock risk.
  • My small value preference would be QRSVX
  • Thanks, those are two interesting choices that I'll certainly keep in mind in the future.
  • My personal favorite is WAMCX. Great and consistent long term performance and a good manager who’s been at the helm for 8 years. Thanks for the suggestion of JSCVX @LewisBraham. Looks interesting. It has held up well previously in down markets. What hurt the fund this year and why do you like it now?
  • I think JSCVX might be a better small-cap value play in this environment as it has a quality tilt. It's also more diversified and has less idiosyncratic individual stock risk.

    If you pick an active manager then you should want idiosyncratic risk. Otherwise just buy an index fund.
  • edited May 6
    @Jojo26 There's a difference between a 5 stock portfolio's idioyncratic stock risk and a 50 stock portfolio's idiosyncratic risk. If having idiosyncratic risk was uniformly a good thing for active management, you wouldn't want a portfolio at all and would just buy one stock. The smaller or weaker the companies are, the less idiosyncratic risk you want. Small companies typically have only have one or two lines of business, fewer customers and weaker balance sheets. They are more prone to blow ups and being driven out of business entirely. It's absurd to say that the two choices are maximum idiosyncratic risk or index funds. There's a middle ground. LLSCX has just 20 stocks and 11% in one stock--that is a lot of idiosyncratic risk.
  • @LewisBraham,
    Still interested in getting your thoughts on why you like this fund. thanks.
  • @MikeW JSCVX has been hurt this year like every other small-cap value fund from coronavirus. The point is in funds that are style box dependent whether the fund is beating its peers within the style box. JSCVX is this year, beating 81% of small-value funds in 2020. Other reasons to like it--below average 0.92% expense ratio for active management, moderate turnover 39% so lower trading costs, but most important I think is its tilt towards high quality small-value, more resilient small companies that can hopefully survive the recession we are entering. But this is by no means an "absolute returns" fund focused on positive returns each year. If small value is down, it will be down too. This is a relative return fund seeking to beat other small-value funds and the Russell 2000 Value index. Absolute return funds are a completely different animal.
  • @Jojo26 There's a difference between a 5 stock portfolio's idioyncratic stock risk and a 50 stock portfolio's idiosyncratic risk. If having idiosyncratic risk was uniformly a good thing for active management, you wouldn't want a portfolio at all and would just buy one stock. The smaller or weaker the companies are, the less idiosyncratic risk you want. Small companies typically have only have one or two lines of business, fewer customers and weaker balance sheets. They are more prone to blow ups and being driven out of business entirely. It's absurd to say that the two choices are maximum idiosyncratic risk or index funds. There's a middle ground. LLSCX has just 20 stocks and 11% in one stock--that is a lot of idiosyncratic risk.

    You keep paying your 1%+ for your closet indexers. I'll spend my risk budget in managers I believe can add value (and they do that by taking considerable idiosyncratic risk).
  • edited May 6
    @jojo26 There are 2000 stocks in the Russell 2000 Index of small caps and 1391 stocks in the Russell 2000 Value Index. JSCVX holds 79 stocks. If you think that's a "closet indexer," you're delusional. Also, it's expense ratio is 0.92%, not "1%+." A manager can still be very active in the small-cap space with 100, 200, 300 stocks, even more. JSCVX's active share metric is 92.4--good enough in my book: https://cdn.janushenderson.com/webdocs/Active+Share+Report_Mutual+Funds_March+2020_exp_07-15-20.pdf
  • No reason to get all defensive. You probably also think your performance is "good" if you meet a certain absolute threshold despite considerably underperforming a benchmark with the same risk characteristics.
  • JoJo, you have made no sense in this exchange with Lewis. He is making good points which you haven't made any. You are talking about wanting to take on risk with a small number of stocks with a great manager so that you can beat that index. I would say 79 stocks in a mutual fund is fairly focused by most peoples standards. You haven't even mentioned your chosen idiosyncratic risk focused fund. You have only down played other suggestions. So, what is this perfect best of the bunch small cap index beater fund you own?
  • @Mikem Don't mind JoJo. He's just being a coprophagian because he's got nothing better to do during the lockdown and he voted for the guy responsible for jeopardizing the recovery. Looked at from that perspective, his senseless attacks make complete sense.
  • Lipper rates Janus small cap value as a "core" fund. And it has spent most of the last five years in M*'s "blend" box.

    It currently holds nearly as much in mid value as in small value

    I don't think "style-drift" is unusual for a low-turnover fund.

    I own it as a small cap value in my IRA.
  • edited May 22
    News article concerning reopening:

    https://www.advisorperspectives.com/articles/2020/05/22/southeastern-the-exceptional-opportunity-in-small-cap-value?topic=energy

    Southeastern Asset Management excerpt concerning LLSCX reopening:

    We designed this reopening in a thoughtful way. We are only targeting $2.5 billion of AUM. If we get there quicker with a performance bounce-back, that's great. We'll close again. We've shown over the years that we focus on doing the right thing for those clients who are already with us.
  • I have been in and now out of Longleaf funds for decades. I finally gave up. While their reports are wonderfully detailed, and they make compelling arguments for all of their positions, the market seldom agrees.

    I think they make some disastrous mistakes over the years, and stuck with large positions that were cheap and stayed cheaper or got cheaper.
    Neither LLSCX or LLPFX have beaten their benchmark over the last decade. 11% of LLSCX is in Century Link which is down 35% since they first bought it. While CTL owns a large chunk of the internet backbone, it is loosing revenue quickly.

    Why bother? Lots of better funds out there.
  • 2020 skews results. Some funds have done way better than their long term performance would suggest, LLSCX has done remarkably worse (99th percentile of mid cap blend category).

    Looking instead at 1/1/2010 through 1/1/2020, LLSCX has done okay. Not an endorsement or a commentary on its investments, but rather a suggestion to look at more than one snapshot in time. Especially given that the outsized impact of the 2020 market effectively transforms some "long term" figures into "what have you done for me lately" pictures.

    Here's a chart over that timeframe comparing LLSCX, R2K (its stated benchmark), midcap blend (its M* category since 2011), and small cap value (it claims to buy small cap companies, and Longleaf generally claims to be a value family). It just edged out R2K (210% cumulative return vs. 206% for R2K), and did better against the MCB and SCV category averages.

    M* comparison chart

    If you don't like looking at charts (personally I prefer to read numbers), the LLSCX summary prospectus says that the fund's average return over the past ten years was 11.98% vs 11.83 for the R2K. That's 2010-2019.

    Why bother? Lots of better funds out there.
    Can't argue with that:-)
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