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Top 5 Stocks of Donald Yacktman's First Special Situation Fund

- By Holly LaFon

After years of maintaining two similar funds, Yacktman Asset Management, founded by Donald Yacktman (Trades, Portfolio), veered from its usual staid course in 2014 in opening its Special Opportunities Fund to pursue investments with a catalyst. The kind of stocks the fund wants and a little about its returns are starting to show now after its second year of life.


The Special Opportunities Fund focuses on small to mid-cap, deep value situations - differing from Yackman's other two funds that focus on large-cap value - while aiming for the same long-term capital appreciation as its brethren. It is also the first Yacktman fund not run only by a Yacktman, instead being managed by Adam Sues, who joined the firm in August 2013 and started the fund in July 2014. It has $18.4 million in assets under management - compared to Yacktman's total assets of $17.3 billion - with 45 holdings that have an average price-earnings ratio of 9.2, price-book ratio of 0.83 and trailing five-year EPS decline of 4.1%.

"Special situations" game for the fund include spin-offs, corporate actions, changes in firm leadership, liquidations, and acquisitions or divestitures. These are in addition to Yacktman's mainstay criteria for investable companies of high quality, durable competitive advantages and low price versus true value that draw devotees to its strategy.

Also unlike Yacktman's other two funds, both overweight in consumer staples and information technology, Special Opportunities is overweight in industrials and consumer discretionary compared to its benchmark MSCI ACQII All Cap.

Coinciding with Special Opportunities' inception, small-cap value stocks have underperformed growth for the past two years, according to the Royce Funds, affecting its returns. The fund returned a negative 7.7% since from its start through June 30.

But more positive environment for small cap more recently also manifest in the fund's return. Small-cap value has trumped growth for three of the past quarters, while the fund gained 12.1% year to date. The fund has also beat its benchmark for the past one-month, three-month, year-to-date and one-year periods on a monthly performance basis through the end of July.

"We think small-cap value is in the early stage of a long-term leadership cycle based on reversion to the mean and the combination of earnings and attractive valuation for many value stocks," Royce Funds Co-Chief Investment Officer Francis Gannon said in a July 5 market perspective article.

As of the second quarter, the top five holdings of the fund are: IMF Bentham Ltd. (IMF.AX), Samsung Electronics Co. Ltd. Preferred (005930.KS), America's Car-Mart Inc. (CRMT), Computer Services Inc. (CSVI) and Texhong Textile Group Ltd. (HKSE:02678).

IMF Bentham Ltd. (IMF.AX)

Australian IMF Bentham Ltd. provides funding for various aspects of litigation. It has a market cap of 274.5 million Australian dollars ($204.5 million U.S.) and traded for 1.64 Australian dollars per share. Its P/B ratio is 1.53 and P/S ratio is near a one-year high at 18.05.

Samsung Electronics Co. Ltd. Preferred (005930.KS)

Samsung is a consumer electronics company. It has a market cap of $215.17 trillion won ($192.9 billion U.S.) and traded for 1,156,000 won per share - near a 10-year high. It has a P/E ratio of 10.8, P/B ratio of 1.25 and P/S ratio of 1.3, close to a 10-year high.

America's Car-Mart Inc. (CRMT)

America's Car-Mart sells older used vehicles and offers financing for customers. It has a market cap of $278.8 million and traded for $34.78. It has a P/E ratio of 26.3, P/B ratio of 1.3 and P/S ratio of 0.56.

Computer Services Inc. (CSVI)

Computer Services deals in core processing, managed services, payment processing and other services to financial institutions and corporations. It has a market cap of $549.8 million, and traded for $39.20. It has a P/E ratio of 19.5, P/B ratio of 3.52 and P/S ratio of 2.47.

Texhong Textile Group Ltd. (HKSE:02678)

Texhong Textile Group Ltd. manufactures cotton textiles as well as yarn and fabrics. It has a market cap of $9.5 billion Hong Kong dollars ($1.23 billion U.S.) and traded for 11.04 Hong Kong dollars - near a two-year high. The company has a P/E ratio of 13.2, P/B ratio of 2.04 and P/S ratio of 0.75, near a two-year high.

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This article first appeared on GuruFocus.