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How This Little-Known Guru Pummeled the Market

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Ordinarily, when a professional investor puts in years of market-beating returns, everybody knows about it. Whether it's from winning a prestigious award or simply getting lots of attention from the financial media, top investors like Peter Lynch, George Soros, and Warren Buffett have become household names and are nearly universally recognized even among the general public.

Sometimes, though, a strong institutional money manager slips under the radar despite putting together a good track record. One of those managers is Donald Yacktman, whose Yacktman Fund has clobbered the competition for more than a decade. Thanks to SEC rules that require mutual funds and other institutions to disclose their holdings every quarter, you can get a bird's-eye view of what stocks Yacktman thinks are promising right now -- and which ones he's given up.

Staying in the shadows
Compared to someone like Bruce Berkowitz, who has been plastered across the headlines lately, Don Yacktman keeps a low profile. But the Yacktman Fund is no less noteworthy than Berkowitz's Fairholme Fund. With returns of nearly 12% over the past decade, the Yacktman Fund actually beats out Fairholme's track record by a narrow margin. Yacktman also manages a smaller fund, the Yacktman Focused Fund, which has had even stronger performance.

Yacktman's moves in the past quarter have been more subtle than Berkowitz's big bets on financials, but that reflects the more diversified approach to investing that Yacktman uses. Perhaps the highest-profile move is Yacktman's addition of Cisco Systems (Nasdaq: CSCO  ) , in which he took a position worth nearly $100 million.

Yacktman isn't shy about looking for value anywhere he can find it. He continued to build a stake in News Corp., adding an additional 9.4 million shares during the quarter. Blue chips Procter & Gamble (NYSE: PG  ) and Sysco (NYSE: SYY  ) also showed big pick-ups.

Staying safe
Those stocks exemplify the solid nature of most of Yacktman's picks. Look through his funds' holdings, and you'll find plenty of industry leaders covering every sector in the economy. Although that tendency to stick with the most stable stocks has cost Yacktman's funds some relative performance during bull markets, it has saved shareholders from huge amounts of pain when the overall market takes a dive. Winning years in the tech-bust times of 2001 and 2002, along with much smaller losses than the market in 2008, show how that strategy adds up to long-term outperformance.

But that doesn't stop Yacktman from making the occasional riskier bet. For instance, he kept adding to a big position in H&R Block (NYSE: HRB  ) , which has struggled amid losing its refund anticipation loan business.

On the sell side, Yacktman got rid of positions in retailer Abercrombie & Fitch (NYSE: ANF  ) , as well as health-care names WellPoint (NYSE: WLP  ) and Prestige Brands. He also reduced his holdings in Bank of America (NYSE: BAC  ) by more than 90%, presumably concluding that the easy money has been made in the sector in its big run-up since the March 2009 lows.

It's a bit difficult to draw obvious conclusions from Yacktman's moves, given the diversified nature of his funds. But the overall portfolio has a marked consumer orientation to it, with consumer stocks making up more than half of his funds' assets. Still, the only real generalization you can draw is that Yacktman will go wherever he can find attractive prospects -- and so far, he's done a great job of finding them.

Look harder
Famous investors are easy to learn about. But as strong as someone like Warren Buffett may be as an investor, his methods represent only one of many money-making strategies you can use. Sometimes, lesser-known experts who miss out on the glamour and prestige of the limelight have more to teach you than the household names of the investing world. By looking beyond the headlines at funds like Yacktman's, you'll expand your horizons and put yourself in position to learn all you can about investing from as many viewpoints as possible.

You can pummel the market with your own stock picks. Read Anand Chokkavelu's ideas of stocks that could give you 100% returns.

Fool contributor Dan Caplinger tries to learn from everyone. He owns shares of the Fairholme Fund. Sysco and WellPoint are Motley Fool Inside Value selections. Procter & Gamble and Sysco are Motley Fool Income Investor picks. The Fool has created a bull call spread position on Cisco Systems. The Fool owns shares of Bank of America, and through a separate account in its Rising Stars portfolios also has a short position in Bank of America. Motley Fool Alpha owns shares of Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy makes everything well-known.

Read/Post Comments (2) | Recommend This Article (27)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2011, at 8:20 PM, Merton123 wrote:

    The Yachtman Focused Fund only has 32 companies in its portfolio. The fund has close to 2 billion dollars. Morningstar gives this fund 5 stars and its 10 year performance is excellent. The fund has a 6% turnover rate.

    The fund is doing everything right from a statistical perspective in pulling a nonrepresentative sampe (i.e., small - only 32 companies) that has provided a return substantially different from the population from which the stocks were pulled from. The low turnover rate also means that the fund puts some thought into what it buys and sells.

    Generally speaking the market reprices stocks every quarter after the quarterly earnings has been published. Mutual Funds with turnover rates of 50% or more are basically buying and selling their holdings every couple of months which doesn't give time for the underlying ideas behind the holdings to be reflected in the quarterly earnings.

    There are some lessons here for the rest of us. Interestingly Warren Buffet also echos the characteristics of this fund - he advises low turnover, hold for the long term, and have a focused portfolio.

  • Report this Comment On February 27, 2011, at 1:58 AM, mike2153 wrote:

    I have two mutual funds: YACKX for 11 months and FOOLX for 15 months. YACKX has returned 5% in that time; FOOLX has returned 28%. Except for a membership, I have no connection to the FOOL. I'm disappointed in YACKX's performance, considering its history (which I looked into before buying). I'm disappointed in YACKX because all the research I did before purchasing it said that it was one of the best performing funds. FOOLX I bought mainly on the strength of my opinion of the Gardners. So what does that tell you? I' m not going to sell either one anytime soon, but I'm adding every month to FOOLX.

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