Market Review and Portfolio Update
The third quarter saw U.S. equities finish higher, with 10 out of 11 GICS sectors posting positive returns. The financials and industrials sectors led the way, while energy was the sole detractor.
Portfolio Performance
Our portfolio returned 7.52% (net) for the reporting period, compared to the Russell 1000 Value Index return of 9.43%. While we are frustrated with our recent performance, we remain confident in our time-tested investment approach.
Contributors to Performance
Several holdings contributed to our portfolio’s performance during the quarter. CBRE, a U.S.-headquartered real estate service company, saw its stock price rise following positive second-quarter results. We believe CBRE’s strong management team will unlock value for shareholders.
Fiserv, a U.S.-headquartered data processing and outsourcing services company, also contributed to our portfolio’s performance. Despite no material fundamental changes, the company’s stock price rose, reflecting its improved business results under CEO Frank Bisignano.
Fortune Brands Innovation, a U.S.-headquartered building products company, was another contributor. The company’s stock price rose following the release of second-quarter earnings, which included a positive update on the growth outlook for its digital businesses.
Detractors from Performance
Not all holdings performed well during the quarter. Alphabet, a U.S.-based communication services company, saw its stock price fall following a disappointing ruling in the Department of Justice’s antitrust lawsuit targeting Google Search. While the outcome is uncertain, we believe the most logical remedy would be for the court to require mobile device manufacturers to allow users to select their default search engine themselves.
Charles Schwab, a U.S.-headquartered brokerage company, also detracted from our portfolio’s performance. The company’s net interest revenue fell year-over-year, and it was forced to use higher-cost funding to fund its balance sheet.
APA, a U.S.-headquartered oil and gas exploration and production company, was another detractor. Despite reporting adequate second-quarter results, the company’s stock price declined.
New Holdings
During the quarter, we initiated positions in Genuine Parts Company, a leading global service provider, and Merck, a global pharmaceutical firm. We believe both companies have strong competitive positions and offer attractive valuations.
Eliminated Holdings
We eliminated several positions during the quarter, taking advantage of market conditions to sell holdings that no longer met our investment criteria.
Investment Approach
Our investment approach remains unchanged. We focus on identifying businesses with strong, durable cash flow streams and buying them at attractive valuations. While traders may influence short-term market conditions, we believe our time-tested approach will ultimately deliver strong returns for our clients.
Disclaimer
The information contained in this report is for informational purposes only and should not be considered a recommendation to buy or sell any security. The specific securities identified and described in this report do not represent all the securities purchased, sold, or recommended to advisory clients.
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