In the recent fiscal period, the GoodHaven Fund experienced a slight downturn, registering a 0.15% decrease, while the broader S&P 500 index saw a substantial increase of 11.31%. Despite this short-term disparity, the fund remains committed to its enduring investment philosophy, which leverages market fluctuations to strategically acquire attractive assets and divest from less desirable ones. This long-term perspective is central to their operational approach, emphasizing that temporary underperformance is viewed as an opportunity rather than a setback.
The fund's leadership highlighted that their two primary negative influences during this period were long-standing successful investments within the domestic housing market: Builders FirstSource and Lennar. This occurrence is not uncommon for historically strong performers, particularly those operating in cyclical industries. Notably, the fund increased its capital allocation to Builders FirstSource and Lennar during this time, indicating a belief in their future rebound. Furthermore, the semi-annual period saw robust business results across the portfolio, a noticeable rise in insider share purchases, and intensified corporate buyback programs, collectively fostering optimism for future long-term returns.
Looking back since its significant restructuring at the close of 2019, referred to as GoodHaven 2.0, the fund has maintained a solid annualized total return of 12.82% up to May 31, 2026. However, this figure now trails the S&P 500's 15.93% over the same timeframe. The fund acknowledges that occasional underperformance relative to market averages is an expected part of their long-term strategy, and they encourage shareholders to perceive such periods as potential avenues for future growth. The current economic landscape is characterized by heightened volatility, a departure from past trends where market price swings often overshadowed underlying economic stability. Factors such as governmental fiscal policies and the rise of non-fundamental trading strategies contribute to this new norm.
In this dynamic environment, the fund's strategy remains unwavering: to utilize volatility for strategic buying and selling, and to maintain a steadfast focus on the fundamental health of their portfolio companies. While they do not attempt to forecast dramatic macro events, they consider them as a backdrop. Recent macroeconomic topics influencing their considerations include artificial intelligence, affordability concerns, financial market excesses, geopolitical tensions, fluctuating oil prices, and risks within private credit markets. The fund stresses that excessive preoccupation with short-term macro predictions can detract from sound long-term investment decisions.
The top contributors to the fund's performance during this semi-annual period (November 30, 2025, to May 31, 2026) included Arrow Electronics, Inc., Alphabet Inc. - Class C, TerraVest Industries, Devon Energy, and Occidental Petroleum Corp. Conversely, the main detractors were Builders FirstSource, Inc., Lennar Corp - Class B, Berkshire Hathaway - Class B, KKR & Co., and Progressive Corp. Arrow Electronics, a new discussion point for the fund, played a significant role as a leading global distributor of electronic components and IT solutions. The fund acquired shares during a market downturn, confident in the industry's adaptation to inventory corrections and a cautious recovery in demand, particularly benefiting from the surge in AI infrastructure spending.
Alphabet continued its strong performance, driven by robust growth in Google Search and Google Cloud, with AI solutions significantly boosting its backlog. Despite high and projected increasing capital expenditures, the fund remains optimistic about future spending normalization. TerraVest, another long-term success, showed strong results and an accelerated pace of acquisitions. However, post-period news surfaced regarding a Canadian regulatory investigation into its Executive Chairman, Charles Pellerin, for alleged non-public information conveyance. While no charges have been filed and the company is investigating, the fund highlighted CEO Dustin Haw's capable leadership and recent strategic moves, including an acquisition and aggressive share buybacks, as positive indicators.
The fund's largest capital additions during this period were to Builders FirstSource and Asbury Automotive. Their investment in Asbury Automotive stems from a deep study of the U.S. auto dealership industry, noting its consolidation, competitive advantages, and protective state franchise laws. Asbury, a major automotive retailer, has shown impressive growth under CEO David Hult, with revenues expanding from $7 billion to $18 billion and EPS from ~$9 to $25 between 2019 and 2025. The company's diversified portfolio and strong operating margins, particularly from its parts & service and finance & insurance segments, position it well. With a new CEO, Dan Clara, taking the helm, the fund anticipates a positive earnings inflection in the medium term, believing the shares are currently undervalued.
In terms of sales, the fund's only significant divestment was its holding in Vitesse Energy, motivated by management inconsistencies regarding strategy and capital allocation, though it yielded a low teens internal rate of return. The report also highlighted several instances of strong insider buying across their portfolio companies, including significant purchases by Berkshire's Greg Abel, Builders' Paul Levy, and KKR's co-CEOs, as well as Asbury Automotive's David Hult and Arrow's interim CEO, signaling confidence from within. Amidst rising speculative activity in financial markets, escalating U.S. government borrowing levels, and the impactful rise of AI, the fund acknowledges these broader economic concerns but remains anchored in its valuation-driven approach.
As the second half of calendar year 2026 commences, the GoodHaven Fund begins with a portfolio it considers undervalued and fundamentally strong. The managing partner reinforced his personal commitment to the fund by increasing his own holdings, reflecting confidence in its ongoing unfolding. The fund also extended gratitude to its board of trustees and long-term partner, Markel, for their continued support and counsel.