2Q25 Partners Fund Commentary

Longleaf Partners underperformed the S&P 500 in Q2 2025, returning 5.33% versus the index's 10.94%, but the fund argues this reflects disciplined positioning rather than weakness. The managers contend that the overall market is misdistributing earnings uncertainty on a stock-by-stock basis, with indexing and "never let you down" stocks driving valuations while speculation in lower-quality names fuels rallies. The fund's portfolio trades at a price-to-value ratio in the low-60s% and a price-to-free cash flow multiple below 10x, compared to the market's 20x-plus multiple, offering what the managers describe as a compelling margin of safety. The fund holds 19 positions and maintains 18.2% cash. Key themes include tariff-exposed names (Mattel, PVH, FedEx) taking offensive actions like share repurchases and spin-offs; healthcare holdings (Regeneron, Bio-Rad) executing intelligent capital allocation amid policy uncertainty from the new administration; and energy stocks (CNX Resources, HF Sinclair) benefiting from geopolitical tensions and value-creating moves. Notable Q2 contributors included HF Sinclair, a new undisclosed media and entertainment purchase, and MGM Resorts, which reported strong results and is executing share repurchases. Detractors included Kraft Heinz, which the fund believes the market is overlooking despite a quality mix shift toward premium brands, and Regeneron, where the fund increased its position on share price weakness following disappointing market reaction to Eylea focus and a negative clinical trial. The fund exited Affiliated Managers Group as markets hit highs and initiated two new positions during the quarter. The managers remain optimistic about portfolio companies' operational progress and are deploying cash in a measured way, citing solid returns and a strong start to Q3.