But the last few years have been more challenging ones for the fund. “This fund’s recent results continue to suffer as managers Stephen Yacktman and Jason Subotky refuse to chase stocks in what they consider to be an expensive market,” wrote Morningstar analyst Kevin McDevitt in a report issued late last year. “Such discipline has served the fund well over the long term, but it has meant missing out on a big chunk of the market’s gains following the mid-2011 correction.” Nonetheless, Morningstar assigns the fund four stars and a “Gold” rating for its patient and disciplined investment approach.
Not all shareholders, though, have been willing to wait things out. In 2014, the fund had $13.5 billion in assets, up from $300 million just five years earlier. Yet as of late last year, its asset base stood at only around $9 billion. A similar story unfolded for the AMG Yacktman Focused Fund, which has $4.5 billion in assets, down from $11.6 billion at the beginning of 2014.
Yacktman says many of those who left were performance chasers who didn’t really understand what the fund was about. Co-manager Jason Subotky stresses that it’s important for investors in this fund to understand its unique ebbs and flows and to hang in for a full market cycle to truly appreciate its value.
“We’re not trying to get the highest returns in expensive markets,” Subotky says. “Our shareholder base expects us to manage risk and perform well during difficult periods.”
Looking for Consistency
Like its allocation parameters, Yacktman’s stock picking approach is also fluid. While the goal is to buy high-quality companies at low prices, the fund’s holdings often straddle the growth-at-a-reasonable-price and value camps. Depending on pricing and other factors, its purchases may lean toward one end of that spectrum or the other.
Over the last few years, the emphasis on value and pricing has risen as high-quality growth stocks have gotten more expensive. Even among these bargains, the managers like to see a company enjoy high market share, high cash return on assets, relatively low capital requirements, reasonable debt, and unique franchises. The fund also likes a company’s management to be friendly to shareholders—to reinvest in its business, make synergistic acquisitions and pursue stock buybacks.
When Yacktman doesn’t find stocks he likes, he may sometimes invest in high-yield bonds. He made one such investment in the debt of beauty products company Avon. While Avon’s stock fared poorly in 2017 because of disappointing earnings, the company’s bonds were selling at a hefty discount. Yacktman bought them, and they offer attractive interest payments that Avon is well prepared to sustain over the long term.
The fund’s adaptable, wait-it-out approach reflects Yacktman’s long tenure at the firm, which his father, Donald Yacktman, founded in 1992 after spending 10 years managing Selected American Shares. Stephen, one of Donald’s seven children, joined the firm in April 1993 as an analyst soon after graduating from Brigham Young University. He served as co-manager for the AMG Yacktman Fund and AMG Yacktman Focused Fund beginning in 2002, and in 2006 he was named co-chief investment officer and senior vice president of the firm. In early 2013, he took over as chief investment officer. His father, now in his mid-70s, continues to work at the firm and contribute ideas.
While the fund’s strategy has remained fairly consistent over the years, Stephen, now 47, has initiated some changes. The firm used to assign analysts to specific industries, but found that doing so led to an industry bias. Now, analysts take a more generalist approach. The fund also owns more technology stocks than it did years ago, when the sector consisted of more volatile stocks and companies with erratic cash flows. And it has de-emphasized stocks of large banks, whose financial reports may not always reveal the full extent of the risks they are taking.