Corporation underwent a significant capital raise last spring. The company raised over one billion in capital through a combination of stock and convertible debt. After initially surging +20% following the offering, the shares slumped and dropped well below the offering price of the capital raise. That was an opportunity; the capital raise virtually assured their financial viability and the high-quality mortgages underwritten from 2009-2013 were almost certain to be very profitable. While the story has yet to play out completely, MGIC Corp. along with investments in another mortgage insurer, Genworth Financial, were among the largest positive contributors to our performance.
Other positive contributors that have been sold or reduced were Vodaphone Group PLC, Nicholas Financial and Cintas Corp.
Among the other larger positions in our managed accounts, little has changed since last year other than a general increase in the value of the shares. While we no longer consider them to be dramatically undervalued, we continue to own significant stakes in Berkshire Hathaway, Republic Services, Nestle S.A. and the Bank of New York. In addition to reasonable valuations, we like the capital allocation decisions of management, the strength of the business franchises and the durability of their underlying businesses.
We enter the New Year with a laundry list of potential macro concerns. Among the more problematic are the possibility for an abrupt slow-down in China stemming from loan defaults on LGTV’s (Local Government Financing Vehicles), a return of the European Sovereign crisis and/or a stalemate over raising the U.S. debt limit. There are many other possible destabilizing macro factors and they would be less of a worry if stock prices were not elevated. But they are, and this leaves them vulnerable to a correction.
We are not in the business of forecasting markets or the future. We would welcome a correction as that would enable us to purchase bargain securities. In looking back over the past fourteen years of results for the account composite, we have generally fared well with a head wind. Our managed accounts have the cash on hand to buy and we have plenty of securities that have been thoroughly researched and pre-identified for purchase should prices become attractive.
Please feel free to contact us with any questions or comments. As always, we thank you for your trust and patience.
Very truly yours,
Eckart A. Weeck
Senior Managing Director