PORTFOLIO REVIEW
While our results varied across strategies, we are generally pleased with this quarter’s results. These results are detailed in the table below. As we have often said, we place no weight on short-term results, good or bad. When we think we can improve our prospective long-term returns and lower risk, we will make those decisions without regard to their effect on short-term performance.
We experienced stock price volatility with several companies in the portfolios. We followed our discipline and took advantage of this volatility by allocating capital to companies where our price to value ratios improved.
INVESTMENT STRATEGY |
QTD |
YTD |
AnnualizedSince Inception* |
Large Cap Composite (Gross) |
8.3% |
18.1% |
10.6% |
Large Cap Composite (Net) |
8.2% |
17.6% |
9.9% |
Russell 1000 Value Index |
9.4% |
16.7% |
7.4% |
S&P 500 Index |
5.9% |
22.1% |
10.5% |
Small Cap Composite (Gross) |
9.3% |
10.0% |
8.8% |
Small Cap Composite (Net) |
9.1% |
9.4% |
7.8% |
Russell 2000 Value Index |
10.2% |
9.2% |
6.5% |
Russell 2000 Index |
9.3% |
11.2% |
7.5% |
Focus Composite (Gross) |
5.7% |
18.9% |
14.6% |
Focus Composite (Net) |
5.6% |
18.6% |
13.5% |
Russell 1000 Value Index |
9.4% |
16.7% |
7.8% |
S&P 500 Index |
5.9% |
22.1% |
10.6% |
Focus Plus Composite (Gross) |
6.0% |
19.4% |
14.0% |
Focus Plus Composite (Net) |
5.9% |
18.7% |
12.8% |
Russell 1000 Value Index |
9.4% |
16.7% |
7.4% |
S&P 500 Index |
5.9% |
22.1% |
10.5% |
All Cap Composite (Gross) |
8.3% |
17.2% |
11.5% |
All Cap Composite (Net) |
8.1% |
16.5% |
10.6% |
Russell 3000 Value Index |
9.5% |
16.2% |
10.3% |
Russell 3000 Index |
6.2% |
20.6% |
13.1% |
*Inception date is 3/31/2007 for Large Cap, Small Cap, and Focus Plus Composites. Inception date is 11/30/2007 for Focus Composite. Inception date is 4/1/2011 for All Cap Composite. Past performance is no guarantee of future results. Please see important disclosures at the end of this document. Please reference additional performance information for each of the composites in the strategy reviews that follow and important disclosures at the end of this document. |
In the discussion that follows, we generally define material contributors and detractors as companies having a greater than 1% impact on the portfolio and should be viewed in context with the performance information provided.
Large Cap Review As of 09/30/2024
INVESTMENT STRATEGY |
QTD |
YTD |
1 YEAR |
3 YEAR |
5 YEAR |
10 YEAR |
Since Inception |
Large Cap Composite (Gross) |
8.3% |
18.1% |
40.0% |
2.3% |
11.3% |
10.0% |
10.6% |
Large Cap Composite (Net) |
8.2% |
17.6% |
39.2% |
1.8% |
10.6% |
9.4% |
9.9% |
Russell 1000 Value Index |
9.4% |
16.7% |
27.8% |
9.0% |
10.7% |
9.2% |
7.4% |
S&P 500 Index |
5.9% |
22.1% |
36.4% |
11.9% |
16.0% |
13.4% |
10.5% |
Inception 03/31/2007 |
We purchased three new positions during the quarter: Everest Group Ltd. (EG), Partners Group Holding AG (OTCPK:PGPHF), and LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF).
We sold two positions during the quarter: United Health Group Inc. (UNH) and Starbucks Corp. (SBUX)
There was one material contributor to performance: Jones Lang LaSalle Inc. (JLL) There were no material detractors.
Everest Group is a global reinsurance and insurance business known for its disciplined cost structure and high- quality underwriting. Insurance is an inherently cyclical business. “Hard markets” occur when premium prices are high relative to insured risks. Hard markets inevitably attract more capital to the industry, causing premium prices to fall relative to insured risks, which results in a “soft market”. Soft markets lead undisciplined underwriters to post underwriting losses, removing capital from the industry, and the cycle repeats. In evaluating insurance companies, we believe that growth in tangible book value per share more closely approximates growth in intrinsic value per share than does growth in earnings per share. Compounding book value per share requires underwriting discipline. Moreover, given the cyclical nature of the business, a disciplined underwriter will have more volatile earnings in the short run than an undisciplined underwriter. Everest Group underwrites aggressively in hard markets and builds underwriting capacity during soft markets. During the most recent hard market, the company has significantly grown book value per share. We applaud Everest Group’s emphasis on growing intrinsic value per share over the long term instead of managing short term earnings per share. We first purchased Everest Group, then called Everest Re, in Small Cap where we held it for over thirteen years. It grew into a large cap, and we owned it in Large Cap for over ten years. We are pleased to be able to invest in Everest Group again with a margin of safety to our estimate of intrinsic value.
Partners Group is a diversified global alternative asset manager based in Switzerland. We like Partners Group for several reasons including its annuity-like fee streams and the tailwind of increasing capital flows into private markets. We previously owned Partners Group in 2021. We exited our position when the price rose compared to our estimate of fair value and reallocated capital to companies with larger margins of safety. Its value has continued to compound while its stock price has not increased as quickly giving us the opportunity to purchase it once again at a discount to our estimate of fair value.
LVMH is the largest luxury goods manufacturer in the world. It benefits from brand equity curated over decades with high quality, exclusive products that are instantly recognizable to consumers worldwide. LVMH owns a global portfolio of 75 luxury brands across various categories such as fashion, jewelry, wines and spirits, cosmetics, watches, and other goods. Its prominent brands include Louis Vuitton, Christian Dior, Fendi, Givenchy, Tiffany & Co., and Marc Jacobs. LVMH’s founder and CEO, Bernard Arnault, has operated the business with a long-term mindset that should endure long past his tenure. After several years of above-trend growth, LVMH’s sales growth has slowed, and we believe its profits will decline marginally this year. We believe the company can compound its value at a low double-digit rate over our long-term time horizon. We have owned LVMH in the past, and recent stock price volatility has allowed us to buy this wonderful business with a margin of safety to our estimate of intrinsic value.
During the quarter, we sold UnitedHealth Group and Starbucks. In both cases, we followed our discipline and reallocated capital into more discounted companies.
Jones Lang LaSalle is one of the largest commercial real estate service providers in the world, serving both real estate investors and corporate occupiers of real estate. The company has weathered an industry downturn over the past couple of years and should benefit as interest rates begin to fall. Jones Lang LaSalle generates high levels of free cash flow, possesses a variable cost structure and is diversified across both recurring and transactional lines of business. The company continues to trade at a significant discount to our estimate of fair value.
Small Cap Review As of 09/30/2024
INVESTMENT STRATEGY |
QTD |
YTD |
1 YEAR |
3 YEAR |
5 YEAR |
10 YEAR |
Since Inception |
VVP Small Cap (Gross) |
9.3% |
10.0% |
24.5% |
-9.3% |
4.2% |
6.7% |
8.8% |
VVP Small Cap (Net) |
9.1% |
9.4% |
23.6% |
-10.0% |
3.4% |
5.8% |
7.8% |
Russell 2000 Value Index |
10.2% |
9.2% |
25.9% |
3.8% |
9.3% |
8.2% |
6.5% |
Russell 2000 Index |
9.3% |
11.2% |
26.8% |
1.8% |
9.4% |
8.8% |
7.5% |
Inception 03/31/2007 |
We did not purchase any new positions during the quarter. We sold one position during the quarter: Planet Fitness Inc. (PLNT)
There were four material contributors to performance: Ibstock plc (OTCPK:IBJHF), Colliers International Group Inc. (CIGI), Cushman & Wakefield plc (CWK), and PROG Holdings Inc. (PRG) There were no material detractors.
We sold Planet Fitness during the quarter. While our holding period was shorter than average, our margin of safety closed, and we used the capital to invest into more discounted businesses.
Ibstock is the largest manufacturer of clay bricks and concrete products in the United Kingdom. Domestic brickmakers cannot produce enough bricks to meet long-term demand. Moreover, there is a housing shortage in the United Kingdom. Consequently, Ibstock has strong pricing power. However, in recent years, higher interest rates and a weak British economy have caused housing starts to fall which negatively impacted demand for bricks. More recently, the
U.K. has elected a new government which has pledged to address the country’s housing shortage. In addition, the Bank of England has begun lowering interest rates and the economy is showing signs of improvement. All three of these factors should benefit Ibstock.
Colliers International is a commercial real estate services and investment business. We are attracted to the business because of the diversification of its earnings, which provides stability to an otherwise cyclical business, and its asset light business model, which produces solid free cash flow. Additionally, Colliers is run by a capable and well-aligned management team. The company continues to perform well. Despite real estate transaction volumes still bouncing around trough levels, earnings are approaching record levels, highlighting the secular growth in the rest of the business. The recent decrease in interest rates should help improve transaction volumes and earnings.
Cushman & Wakefield provides commercial real estate services including property management, transaction management, leasing brokerage, and other services in the sale and servicing of commercial real estate. Cushman & Wakefield has a solid business model that is asset light, diversified, and benefiting from secular trends such as the outsourcing of property and facility management. We believe Cushman & Wakefield has the ability to improve future margins and free cash flow. The company experienced a solid quarter with leasing revenue slightly better than expected and announced further debt pre-payments and interest savings, indicating its focus on debt reduction. In addition, Cushman & Wakefield is benefitting from the recent decrease in interest rates.
PROG Holdings is a lease-to-own provider of financing solutions for non-prime borrowers with a national retailer partner network. Recently, prime lenders have been tightening underwriting standards as consumer conditions tighten. These consumers have been turning to PROG Holdings which has increased company earnings and free cash flow.
Focus Review As of 09/30/2024
INVESTMENT STRATEGY |
QTD |
YTD |
1 YEAR |
3 YEAR |
5 YEAR |
10 YEAR |
Since Inception |
VVP Focus (Gross) |
5.7% |
18.9% |
42.9% |
12.7% |
21.2% |
16.0% |
14.6% |
VVP Focus (Net) |
5.6% |
18.6% |
42.3% |
12.3% |
20.7% |
15.3% |
13.5% |
Russell 1000 Value Index |
9.4% |
16.7% |
27.8% |
9.0% |
10.7% |
9.2% |
7.8% |
S&P 500 Index |
5.9% |
22.1% |
36.4% |
11.9% |
16.0% |
13.4% |
10.6% |
Inception 11/30/2007 |
We purchased one new position during the quarter: LVMH Moet Hennessy Louis Vuitton. We did not sell any positions during the quarter.
There were three material contributors to performance: CBRE Group Inc. (CBRE), KKR & Co. Inc. (KKR), and Live Nation Entertainment Inc. (LYV) There were no material detractors.
LVMH is the largest luxury goods manufacturer in the world. It benefits from brand equity curated over decades with high quality, exclusive products that are instantly recognizable to consumers worldwide. LVMH owns a global portfolio of 75 luxury brands across various categories such as fashion, jewelry, wines and spirits, cosmetics, watches, and other goods. Its prominent brands include Louis Vuitton, Christian Dior, Fendi, Givenchy, Tiffany & Co., and Marc Jacobs. LVMH’s founder and CEO, Bernard Arnault, has operated the business with a long-term mindset that should endure long past his tenure. After several years of above-trend growth, LVMH’s sales growth has slowed, and we believe its profits will decline marginally this year. We believe the company can compound its value at a low double- digit rate over our long-term time horizon. We have owned LVMH in the past, and recent stock price volatility has allowed us to buy this wonderful business with a margin of safety to our estimate of intrinsic value.
CBRE is a diversified services provider to commercial real estate occupiers and investors. Its transactional businesses, including property leasing and capital markets transactions, have been impacted by higher interest rates and pressure in the office market. However, its recurring businesses, primarily outsourced facilities management, have continued to grow steadily at a double-digit pace. CBRE reported solid second quarter results, which seemed to indicate its transactional businesses have bottomed and are now on the cusp of a recovery. CBRE should benefit from falling interest rates. We are pleased with CBRE’s performance through what has been a challenging environment for real estate services providers.
KKR is a global investment firm that manages multiple alternative asset classes, including private equity, infrastructure, real estate, various debt strategies, and hedge funds. There were no noteworthy changes during the quarter, and the company continues to execute well.
We added Live Nation to our Focus portfolio in the first quarter of 2024 and finished trading in the second quarter. Live Nation is a live entertainment company with leading positions in ticketing, concert promotion, sponsorship and advertising, and venue operations. Live Nation reported strong second quarter 2024 results, with a revenue increase of 7% and, notably, increase in adjusted EBIT of 23%. Consumer demand remains strong, and the company’s 2025 pipeline looks to be even stronger across all venue types. There was no update on the Department of Justice’s antitrust lawsuit during the quarter.
Focus Plus Review As of 09/30/2024
INVESTMENT STRATEGY |
QTD |
YTD |
1 YEAR |
3 YEAR |
5 YEAR |
10 YEAR |
Since Inception |
VVP Focus Plus (Gross) |
6.0% |
19.4% |
43.7% |
13.0% |
21.4% |
16.2% |
14.0% |
VVP Focus Plus (Net) |
5.9% |
18.7% |
42.2% |
12.1% |
20.3% |
15.2% |
12.8% |
Russell 1000 Value Index |
9.4% |
16.7% |
27.8% |
9.0% |
10.7% |
9.2% |
7.4% |
S&P 500 Index |
5.9% |
22.1% |
36.4% |
11.9% |
16.0% |
13.4% |
10.5% |
Inception 03/31/2007 |
We use options to lower risk. Equity-like returns are possible when option prices reflect higher levels of implied volatility. If exercised, these options give us the right to purchase stakes in companies we want to own at a lower price than the market price at the time the option was written. We would like for these options to be exercised and have set aside cash for that purpose. We employ no leverage. In effect, we are being paid while we wait for lower prices and a corresponding larger margin of safety. We also use options to exit positions. Generally, we write covered calls with the strike price being our estimate of fair value. As with our puts, we are being paid to do something we would do anyway at a given price.
We sold call options during the quarter.
We did not purchase any new positions during the quarter. We did not sell any positions during the quarter.
There were three material contributors to performance: CBRE Group Inc., KKR & Co. Inc., and Live Nation Entertainment Inc. There were no material detractors.
CBRE is a diversified services provider to commercial real estate occupiers and investors. Its transactional businesses, including property leasing and capital markets transactions, have been impacted by higher interest rates and pressure in the office market. However, its recurring businesses, primarily outsourced facilities management, have continued to grow steadily at a double-digit pace. CBRE reported solid second quarter results, which seemed to indicate its transactional businesses have bottomed and are now on the cusp of a recovery. CBRE should benefit from falling interest rates. We are pleased with CBRE’s performance through what has been a challenging environment for real estate services providers.
KKR is a global investment firm that manages multiple alternative asset classes, including private equity, infrastructure, real estate, various debt strategies, and hedge funds. There were no noteworthy changes during the quarter, and the company continues to execute well.
We added Live Nation to our Focus portfolio in the first quarter of 2024 and finished trading in the second quarter. Live Nation is a live entertainment company with leading positions in ticketing, concert promotion, sponsorship and advertising, and venue operations. Live Nation reported strong second quarter 2024 results, with a revenue increase of 7% and, notably, increase in adjusted EBIT of 23%. Consumer demand remains strong, and the company’s 2025 pipeline looks to be even stronger across all venue types. There was no update on the Department of Justice’s antitrust lawsuit during the quarter.
All Cap Review As of 9/30/2024
INVESTMENT STRATEGY |
QTD |
YTD |
1 YEAR |
3 YEAR |
5 YEAR |
10 YEAR |
Since Inception |
VVP All Cap (Gross) |
8.3% |
17.2% |
39.0% |
-0.7% |
9.1% |
9.3% |
11.5% |
VVP All Cap (Net) |
8.1% |
16.5% |
38.0% |
-1.4% |
8.3% |
8.4% |
10.6% |
Russell 3000 Value Index |
9.5% |
16.2% |
27.6% |
8.7% |
10.6% |
9.2% |
10.3% |
Russell 3000 Index |
6.2% |
20.6% |
35.2% |
10.3% |
15.2% |
12.8% |
13.1% |
Inception 04/01/2011 |
We did not purchase any positions during the quarter. We did not sell any positions during the quarter.
There were four material contributors to performance: Ibstock plc, Colliers International Group Inc., Cushman & Wakefield plc, and Dun & Bradstreet Holdings Inc. (DNB) There were no material detractors.
Ibstock is the largest manufacturer of clay bricks and concrete products in the United Kingdom. Domestic brickmakers cannot produce enough bricks to meet long-term demand. Moreover, there is a housing shortage in the United Kingdom. Consequently, Ibstock has strong pricing power. However, in recent years, higher interest rates and a weak British economy have caused housing starts to fall which negatively impacted demand for bricks. More recently, the
U.K. has elected a new government which has pledged to address the country’s housing shortage. In addition, the Bank of England has begun lowering interest rates and the economy is showing signs of improvement. All three of these factors should benefit Ibstock.
Colliers International is a commercial real estate services and investment business. We are attracted to the business because of the diversification of its earnings, which provides stability to an otherwise cyclical business, and its asset light business model, which produces solid free cash flow. Additionally, Colliers is run by a capable and well-aligned management team. The company continues to perform well. Despite real estate transaction volumes still bouncing around trough levels, earnings are approaching record levels, highlighting the secular growth in the rest of the business. The recent decrease in interest rates should help improve transaction volumes and earnings.
Cushman & Wakefield provides commercial real estate services including property management, transaction management, leasing brokerage, and other services in the sale and servicing of commercial real estate. Cushman & Wakefield has a solid business model that is asset light, diversified, and benefiting from secular trends such as the outsourcing of property and facility management. We believe Cushman & Wakefield has the ability to improve future margins and free cash flow. The company experienced a solid quarter with leasing revenue slightly better than expected and announced further debt pre-payments and interest savings, indicating its focus on debt reduction. In addition, Cushman & Wakefield is benefitting from the recent decrease in interest rates.
During the quarter, rumors began to circulate that Dun & Bradstreet was subject to a possible buyout. The company engaged Bank of America to assist with those third-party inquiries. Our value remains stable. We will continue to monitor Dun & Bradstreet’s operating results and external interest in the company. We will follow our discipline as we receive more information.
CLOSING
We thank you, our client partners, for your confidence in us and your stable capital which allows us to execute our investment philosophy. We look forward to updating you again in the new year.
The Vulcan Value Partners Investment Team,
C.T. Fitzpatrick, CFA | McGavock Dunbar, CFA | Stephen W. Simmons, CFA | Colin Casey | Taylor Cline, CFA
Peer Rankings: PORTFOLIO REVIEW
The table below summarizes peer ranking performance information for Vulcan Composite net returns from the quarter following the relevant composite’s inception through June 30, 2024. This information is paid for by Vulcan and sourced from eVestment as of October 7, 2024. Vulcan Value Partners Large Cap and Focus Plus Composites are compared to eVestment’s US Large Cap Value Equity Universe (206 observations), Vulcan Value Partners Focus Composite is compared to eVestment’s US Large Cap Value Equity Universe (211 observations), Vulcan Value Partners Small Cap Composite is compared to eVestment’s US Small Cap Value Equity Universe (124 observations) and Vulcan Value Partners All Cap Composite is compared to eVestment’s US All Cap Value Equity Universe (71 observations). Past performance is no guarantee of future results. Rankings are subject to change without notice based on the timing of information reported by other managers in each applicable universe. Please see important disclosures at the end of this document.
INVESTMENT STRATEGY |
QTD |
YTD |
AnnualizedSince Inception* |
Peer Rank SinceInception* |
Large Cap Composite (Gross) |
-2.8% |
9.0% |
10.3% |
Top 13% |
Large Cap Composite (Net) |
-2.9% |
8.7% |
9.5% |
|
Russell 1000 Value Index |
-2.2% |
6.6% |
7.0% |
|
S&P 500 Index |
4.3% |
15.3% |
10.3% |
|
Small Cap Composite (Gross) |
0.3% |
0.6% |
8.4% |
Top 48% |
Small Cap Composite (Net) |
0.1% |
0.3% |
7.4% |
|
Russell 2000 Value Index |
-3.6% |
-0.8% |
6.0% |
|
Russell 2000 Index |
-3.3% |
1.7% |
7.0% |
|
Focus Composite (Gross) |
-0.3% |
12.5% |
14.4% |
Top 1% |
Focus Composite (Net) |
-0.4% |
12.2% |
13.4% |
|
Russell 1000 Value Index |
-2.2% |
6.6% |
7.3% |
|
S&P 500 Index |
4.3% |
15.3% |
10.4% |
|
Focus Plus Composite (Gross) |
-0.4% |
12.6% |
13.8% |
Top 1% |
Focus Plus Composite (Net) |
-0.8% |
12.0% |
12.7% |
|
Russell 1000 Value Index |
-2.2% |
6.6% |
7.0% |
|
S&P 500 Index |
4.3% |
15.3% |
10.3% |
|
All Cap Composite (Gross) |
1.3% |
8.2% |
11.1% |
Top 34% |
All Cap Composite (Net) |
1.1% |
7.8% |
10.1% |
|
Russell 3000 Value Index |
-2.3% |
6.2% |
9.7% |
|
Russell 3000 Index |
3.2% |
13.6% |
12.8% |
*Inception date is 3/31/2007 for Large Cap, Small Cap, and Focus Plus Composites. Inception date is 11/30/2007 for Focus Composite. Inception date is 4/1/2011 for All Cap Composite. Past performance is no guarantee of future results. Please see important disclosures at the end of this document. Peer rankings are based on Vulcan performance as of June 30, 2024, because more current data is not yet available and rankings may change based on additional peer group reporting. |
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