Brian Yacktman Finds the Long Term Value in Sustainable Global Pricing Power

June 11, 2019

Brian Yacktman is Chief Investment Officer, Portfolio Manager and a Principal of YCG, LLC. Mr. Yacktman founded YCG Investments in 2007. Prior to founding YCG, Mr. Yacktman was an associate at Yacktman Asset Management, the adviser to The Yacktman Funds. He joined them in June 2004 from Brigham Young University, where he graduated cum laude with a B.S. in economics and an MBA with an emphasis in finance.

In this 4,288 word interview, Mr. Yacktman discusses how he evolved his individual portfolio management company into a financial asset manager with a mutual fund on offer:

“…It is not just about putting up good numbers, but it is how you get there. We believe our approach has shown that ability to produce strong risk-adjusted returns.

I view us as very suitable to investors who are patient and long-term-oriented. In short, we have been able to accomplish these strong risk-adjusted returns by seeking to invest in global champions with pricing power that can grow their volume over the long term.

For that to work out over time requires a patient, long-term investor.”

The Yacktman investment philosophy informs the portfolio construction:

“…40 years ago, to get the capabilities of the smartphone in your pocket would have cost $1 million, but today, you can get it for less than $500.

What is lesser known is that these deflationary forces are happening in industries all around us after you adjust for inflation. Nearly everything is becoming a smaller percentage of someone’s budget.

Food costs are coming down, as are energy costs and commodity costs. They are all facing deflationary pricing. There are very few companies in the world that can buck that trend and maintain a share of our budgets or a share of GDP.

So we want a portfolio that is filled with these global champions.”

Mr. Yacktman illustrates this with one of his stock picks:

“One of my favorite businesses to describe because it explains our strategy so well is Moody’s. Before, I was describing our looking for businesses that are information filters and people filters. Moody’s acts as a powerful information filter.

As you know, Moody’s is selling credit ratings. The industry itself has favorable long-term growth prospects. Because as long as there are businesses in the world, there is going to be the desire to bring down the cost of capital by issuing debt.

Debt issuance has historically grown at least as fast as global GDP. But in the capital markets, bond issuance has grown even faster as it has taken share from banking loans. Moody’s essentially acts as a toll taker on global bond issuance.

We believe that it is indexed to grow volume long term at the pace of GDP or better. Now hanging over its head is that there’s all this global indebtedness. I would argue that some of the best investment opportunities are those when there may be fears in the short to medium term but very clear long-term prospects.

Now, to get down to the specifics about Moody’s as an information filter. Moody’s essentially is charging a very small expense of approximately 7 basis points to rate their bonds. Yet, they save a corporation around 30 to 50 basis points in their annual borrowing costs. So it’s a no brainer for decision-makers…”

To get all of the top stock picks from Brian Yacktman read the entire 4,288 word interview, exclusively in the Wall Street Transcript.