NEW YORK--(BUSINESS WIRE)--
Wintergreen Fund, Inc. today released its 2014 Semi-Annual Report. The
shareholder letter appears below and is also available at http://www.wintergreenfund.com.
Dear Fellow Wintergreen Fund Shareholder,
Wintergreen Fund, Inc. (the “Fund” or “Wintergreen”) outpaced the
Standard & Poor’s 500 Composite Index (“S&P 500”) during the first half
of 2014, with the returns for the Fund’s Investor Class (NASDAQ: WGRNX)
and Institutional Class (NASDAQ: WGRIX) shares comparing favorably to
the S&P 500’s return. The Fund’s performance during the first half of
2014 benefitted from strong returns from long-term holdings in
Birchcliff Energy Ltd. (TMX: BIR), Canadian Natural Resources Ltd. (TMX:
CNQ), and Jardine Matheson Holdings, Ltd. (SGX: JM, “Jardine”).
Securities that underperformed included MasterCard Inc., Class A (NYSE:
MA), Swatch Group AG (SIX: UHR), and SJM Holdings Ltd. (HKEx: 880). The
Fund continued to utilize forward currency contracts, which had an
overall negative impact on performance during the period.
At Wintergreen, we have a high degree of conviction in our investment
process and we have remained consistent with our approach. We continue
to rely on our long standing belief that the following three criteria
are the hallmark of good investments:
First, a business that has good or improving economics, having often
generated sales and profits in multiple currencies and jurisdictions;
Second, a management team that is working for the benefit of all
shareholders and not just for its own short-term compensation; and
Third, the security being available at a compelling price.
When there is a change based on Wintergreen’s analysis of a portfolio
holding in terms of meeting all three of these criteria, it is likely
that there will be a change in the Fund’s continued investment in that
security. The analysis of how the facts change over time can lead to an
increase or a decrease in the size of the position; an example of this
is our investment in Jardine Matheson. Jardine is a security with solid
management that has been working for all shareholders; it is a security
that has grown significantly in value during the 9 years the Fund has
owned it. Even though the Fund has recently reduced its position in
Jardine, we continue to have confidence in management.
The price of success is hard work, dedication to the job at hand, and
the determination that…we have applied the best of ourselves to the task
- Vince Lombardi
Vince Lombardi is widely known as a quintessential leader and motivator.
His success and leadership qualities continue to serve as an inspiration
to people all over the world. Jardine’s shareholders have benefitted
from the same kind of leadership throughout the company’s long and
distinguished history. After years of steadily rising revenues and
profits, we believe the economics of the main businesses owned by
Jardine Matheson remain solid. Our reason for reducing the size of the
position is that, in our view, the first of the three pronged investment
criteria of “good or improving economics” isn’t as favorable as it once
was. We know this company well and particularly respect the abilities of
its management; thus, we continue to follow the developments of Jardine
and evaluate its position in the portfolio. We very well may return to a
bigger position in this security as the company progresses. In the
meanwhile, we will invest some of our shareholders’ money elsewhere.
Leadership is practiced not so much in words as in actions.
Harold S. Geneen
Harold S. Geneen was the American businessman who is largely credited
with creating the first international conglomerate. In 1959, he was
named CEO of International Telephone and Telegraph (“ITT”) and when he
retired from that position less than twenty years later, the company’s
revenue had grown to twenty times what it was in 1959. A big part of
ITT’s success was based on Geneen’s international investment in and
acquisition of 350 companies in 80 countries. He was a larger-than-life
CEO whose diversification strategy and management style have been widely
imitated. In the years following his departure from ITT, the company was
largely dismantled in a way that was quite profitable for ITT
Similar to ITT, Berkshire Hathaway (NYSE: BRK.B, “Berkshire”) is a large
conglomerate run by world famous CEO, Warren Buffett. Berkshire has
enjoyed a nearly unprecedented run in the 49 years since Mr. Buffett
took control of the company, compounding book value by 19.7% annually
through the end of 2013. It is a wonderful collection of 83 businesses,
ranging from the Burlington Northern Santa Fe railroad to GEICO to
Benjamin Moore. Berkshire also has investments in dozens of publicly
traded companies. The Fund has owned shares of Berkshire Hathaway since
early 2006, and we believe the shares are currently trading for a
meaningful discount to their intrinsic value. During the 2nd
quarter of this year, the Fund sold nearly all of its Berkshire shares.
Why would we sell a company with solid economics and undervalued shares,
led by an acclaimed CEO? Simply put, we have lost confidence in
management at Berkshire.
This past spring, The Coca-Cola Company (NYSE: KO, “Coca-Cola”), which
counts Berkshire as its largest shareholder, asked shareholders to
approve an equity compensation plan for the top 5% of its employees,
which Wintergreen believed to be extraordinarily excessive. The proposed
plan could massively dilute all Coca-Cola shareholders and be a
significant headwind to the company’s share price. As Warren Buffett has
spoken out repeatedly over the years about the need to rein in excessive
compensation, we believed he would be a natural ally to help defeat
Coca-Cola’s proposed plan, which we believe was designed to reward
management in precisely the manner Warren Buffett had publicly railed
against for decades. Mr. Buffett wrote in Berkshire’s 2006 annual letter
that “compensation reform will only occur if the largest institutional
shareholders – it would only take a few – demand a fresh look at the
whole system.” He added to that sentiment at the 2009 Berkshire
shareholder meeting, stating that institutional investors should “speak
out on the most egregious cases. The way to get big shots to change
their behavior is to embarrass them. The press has great opportunities
for this, but the big institutional investors could help." Who better to
have put a stop to Coca-Cola’s excessive compensation plan than the man
who said these things and who also happens to be the Chairman of the
Board of Coca-Cola’s largest shareholder?
We wrote several letters to both Coca-Cola’s board of directors and
Warren Buffett, asking Coca-Cola to withdraw the proposed plan and Mr.
Buffett to take a public stand against it. As one of the world’s most
well-respected and widely-followed investors, we believe Mr. Buffett
likely knew that if he had publicly stated that Coca-Cola’s proposed
plan was excessive and bad for shareholders, he may have influenced the
outcome of the vote. Unfortunately, Mr. Buffett chose to remain publicly
silent regarding the plan during the proxy solicitation period. It was
only after Coca-Cola’s annual meeting took place, and all the votes had
been cast, that Mr. Buffett stated his agreement with us, calling the
plan “quite excessive,” “too much,” and “a significant change” from past
Coca-Cola equity plans, and that “it isn’t like incentives are lacking.
But you can give away too much of a company,” during an interview with
CNBC. Rather than vote against the plan, Berkshire chose to abstain from
voting and Mr. Buffett chose to remain silent before the vote. It
appears to us that he may have chosen the interests of his friends at
Coca-Cola over the interests of Berkshire shareholders, stating “I love
the management [of Coca-Cola], I love the directors…so I didn’t want to
vote no…I didn’t want to express any disapproval of management.”
We believe the implementation of the 2014 equity plan at Coca-Cola will
be expensive for Coca-Cola shareholders (including Berkshire) and may
make it difficult for Coca-Cola to grow value on a per-share basis. We
believe this plan epitomizes the kind of excessive pay that Mr. Buffett
has said for years is bad. Mr. Buffett wrote in Berkshire’s 2003 annual
report that “in judging whether Corporate America is serious about
reforming itself, CEO pay remains the acid test.” In the case of
Coca-Cola’s equity compensation plan, we believe Warren Buffett clearly
failed his own acid test.
As shareholders of both Coca-Cola and Berkshire, these words and actions
(or more aptly, inactions) did not sit well with us. We no longer felt
that Warren Buffett was looking out for his shareholders’ interests.
Although Berkshire is still a high quality business with a compelling
valuation, it no longer meets the second principle of our three pronged
investment criteria – management working on behalf of all shareholders.
With our confidence in management gone, we moved quickly to sell most of
our Berkshire holdings out of the portfolio. We are pleased with the
sizeable gains we have realized on the Fund’s Berkshire holdings (most
of those gains, along with the gains from the sale of Jardine, will be
offset by Net Capital Loss Carry-forwards from the financial crisis of
2008-2009, minimizing the tax implications for Fund investors) and we
are actively redeploying the cash into situations which we believe to be
“Never believe that a few caring people cannot change the world.For,
indeed, that’s all who ever have.”
- Margaret Mead
Dr. Margaret Mead is best known as a cultural anthropologist and
ethnologist. She was also a well-respected national commentator on a
wide range of topics including air pollution, architecture, civil
liberties, hunger, military service, and women’s careers, all of which
contribute to our culture today. She had an interest in the role and
responsibility of both the individual and the corporation in society.
Although we sold the vast majority of the Fund’s Berkshire shares, we
have held onto our Coca-Cola shares. We believe the problems at
Coca-Cola are fixable and the opportunities are massive. We see two
possible outcomes for Coca-Cola – either current management fixes the
company’s strategic problems and gets Coca-Cola back on track to
profitable growth, or someone else will do it for them. With interest
rates at historic lows and the world awash in cash looking for
attractive investments, it is not inconceivable that Coca-Cola could
find itself on the auction block. In either outcome, we believe the Fund
has the potential to profit.
While we much prefer to have quiet and cordial relationships with the
companies owned in the Fund, we will not hesitate to speak up publicly
if a company does something which we believe to be contrary to the
interests of the Fund and our shareholders. Unlike many well-known
activist investors, we do not seek out disputes with companies, buying
shares solely for the purpose of agitating for a breakup or change in
strategy. Rather, we are long-term shareholders who have happily owned
Coca-Cola shares for over five years. Only after the company proposed an
excessive compensation plan did we become more publicly involved. In the
course of our dispute over the company’s compensation plan, we have come
to realize that Coca-Cola is ripe for operational improvement and in
need of more proactive management.
In the second quarter of this year, we began to publish a quarterly
commentary for the Fund, discussing what transpired in both the Fund and
global markets during the quarter. The commentary can be found on the
Fund’s website www.wintergreenfund.com,
and we encourage all investors to read it.
We appreciate your continued interest and investment in Wintergreen Fund.
David J. Winters, CFA
Before investing you should carefully consider the Fund’s investment
objectives, risks, charges and expenses. This and other information is
in the prospectus and summary prospectus, a copy of which may be
obtained by visiting the Fund’s website at www.wintergreenfund.com.
Please read the prospectus and summary prospectus carefully before you
The Fund is subject to several risks, any of which could cause an
investor to lose money. Please review the prospectus for a complete
discussion of the Fund’s risks which include, but are not limited to,
the following: possible loss of principal amount invested, stock market
risk, interest rate risk, income risk, credit risk, currency risk, and
foreign/emerging market risk. These risks include currency fluctuations,
economic or financial instability, lack of timely or reliable financial
information or unfavorable political or legal developments. These risks
are magnified in emerging markets. Short sale risk is the risk that the
Fund will incur an unlimited loss if the price of a security sold short
increases between the time of the short sale and the time the Fund
replaces the borrowed security. In light of these risks, the Fund may
not be suitable for all investors.
For the period ending June 30, 2014, the Fund’s Top Ten Equity Holdings
were: Swatch Group AG* (SIX: UHR, SIX: UHRN), 8.2%; British American
Tobacco plc (LSE: BATS), 6.3%; Compagnie Financiere Richemont SA (SIX:
CFR), 6.2%; Canadian Natural Resources Ltd. (TMX: CNQ), 6.2%; Franklin
Resources Inc. (NYSE: BEN), 6.1%; Reynolds American, Inc. (NYSE: RAI),
5.8%; The Coca-Cola Company (NYSE: KO), 4.6%; Birchcliff Energy Ltd.
(TMX: BIR), 4.5%; Jardine Matheson Holdings Ltd. (SGX: JM), 4.3%; Wynn
Macau Ltd. (HKEx: 1128), 4.3%. *Includes Swatch Group AG Bearer and
The S&P 500 Index is a broad based unmanaged index representing the
performance of 500 widely held common stocks. One cannot invest directly
in an index.
The views contained in this report are those of the Fund’s portfolio
manager as of June 30, 2014, and may not reflect his views on the date
this report is first published or anytime thereafter. The preceding
examples of specific investments are included to illustrate the Fund’s
investment process and strategy. There can be no assurance that such
investments will remain represented in the Fund’s portfolios. Holdings
and allocations are subject to risks and to change. The views described
herein do not constitute investment advice, are not a guarantee of
future performance, and are not intended as an offer or solicitation
with respect to the purchase or sale of any security.
Foreside Fund Services, LLC, distributor.
Wintergreen Advisers, LLC
David J. Winters, 973-263-4500
Park Financial Communications
Richard Mahony, 917-257-6811
Source: Wintergreen Fund, Inc.