Foreign stocks took a breather in June, and our global fund followed suit.

 

June

Year to Date

Since Inception (Annualized)  Inception Date: 6/6/2009

Motley Fool Independence Fund (FOOLX)

-0.17%

18.32%

12.64%

FTSE Global All Cap Index

0.56%

11.63%

11.41%

For a standardized list of performance for the Independence Fund, please click here. For fund holdings, please click here.

The Independence Fund coasted into the summer with a modest loss in June. Year to date, and since inception, the Independence Fund is beating its benchmark. More importantly for the long-term positioning of the portfolio, the fund owns a special collection of high-quality companies, located around the globe, that trade at reasonable prices.

For the first time in a few months, U.S. stocks performed better than foreign ones. The stocks the fund owns largely followed suit, with our domestic holdings edging out a small gain and our foreign stocks falling a small amount in aggregate.

Five of the six worst-performing stocks in the portfolio, in fact, were foreign. There was little news to explain why Zooplus, MercadoLibre, Sberbank, Nippon Indosari, and System1 Group declined between 8% and 17%. Each has a different region of business – Germany, Latin America, Russia, Indonesia, and Great Britain. Their only common thread is that they have all been standout performers for the year.

The worst-performing U.S. stock was Costco, down 11%. Costco continues to delight its customers and put up healthy same-store-sales numbers. However, Amazon.com announced its entry into the grocery business by acquiring Whole Foods during the month. Grocery is big business, and Amazon is making its largest acquisition ever to gain a significant foothold. A sensible conclusion is that Whole Amazon (or however the combination develops) will be a more difficult competitor than the two would be separately. But we believe the haircut to Costco’s valuation can be restored as the company delivers results that prove other grocers will be the ones that suffer. Costco is laser-focused on its customers, is already experimenting with delivery, and has a powerful value proposition.

The best-performing stock in the portfolio was XPO Logistics, up nearly 23% in the month. Although we’ve followed XPO for a while, we didn’t start a position in the Independence Fund until March of this year. (Here’s our thesis.) We added more earlier in June. It was business as usual for XPO for the month, with no needle-moving business developments, but the company did receive an analyst upgrade or two, which suggests investors are beginning to see what we see.

We eliminated four positions during the month. Level 3 Communications and NXP Semiconductor will soon be acquired, and we determined we had better use for the cash. We sold our tiny position in TripAdvisor, in favor of making a larger investment in Ctrip.com. And finally, we sold niche insurer Markel. That one was a tough decision. Our belief is that the insurance market has become overly competitive as hedge funds and other new entrants have sniffed out the uncorrelated cash flows. Persistently low interest rates will keep a weight on the large fixed-income investment portfolio and we have yet to see proof that Markel Ventures is a lock to produce adequate returns. We just don’t see Markel able to produce the necessary growth in book value per share growth to justify its extended valuation.

As for additions to the portfolio, we initiated a position in Japanese conglomerate SoftBank. A simple – and perhaps blasphemous – way to think about SoftBank is that it’s a technology-loving Berkshire Hathaway. Bear with me on this. SoftBank is the investing vehicle of Masayoshi Son, who over the years built a successful telecom business in Japan. That business generates too much cash flow to reinvest into domestic operations, as the Japanese telecom market is mature, so Son has been investing globally in technology companies. Like Berkshire, SoftBank has purchased entire businesses, bought shares in publicly traded companies, and purchased pieces of private ones. You’d recognize some of his investments: Yahoo! Japan, Alibaba, Sprint, ARM Holdings, NVIDIA.

We believe the value of the telecom franchise explains about 70% of SoftBank’s 10 trillion yen market cap, meaning the remaining investments and assets are worth only 3 trillion yen. Even with a punitive conglomerate/liquidity discount, that’s too low. Unlike with Markel, we believe Son’s company has ample attractive reinvestment opportunities and can grow the value of SoftBank for years to come.

 

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