Southeastern Asset Management is a Memphis-based deep-value firm founded in 1975 by O. Mason Hawkins to exploit the bargains left by the 1973-74 bear market. Its flagship Longleaf Partners Funds (launched 1987) invest employees' own money alongside clients'. Following Graham's discipline and its "Business, People, Price" framework, it runs concentrated books of 15-25 undervalued stocks held for the long term — famously closing funds to new investors when opportunities were scarce. CEO and Head of Research Ross Glotzbach now leads the firm, which publishes quarterly Longleaf fund commentaries and Research Perspectives notes.
In its Q3 2026 letter, Southeastern (Longleaf Partners) reported a -2.41% return for the fund, trailing the S&P 500's +2.30% and the Russell 1000 Value Index's +2.61%. The author compared the current market to 2000, arguing that the portfolio's intrinsic value growth outpaced stock performance. The fund trimmed Avantor after its stock rose over 50% and approached its estimated value, initiated a position in Universal Music Group, and disclosed a Q2 purchase of Abbott Labs. The author estimated that short-term earnings disappointments dragged returns by a few hundred basis points, while well-performing but stagnant stocks contributed 500-1000 bps. This was the author's hypothetical estimate, not the fund's actual return.
Southeastern (Longleaf Partners) Q3 2026 letter to investors: The fund returned -2.41% for the quarter, significantly underperforming the S&P 500 (+2.30%) and the Russell 1000 Value Index (+2.61%), but the author believes the current market environment resembles 2000 rather than 2022, with the portfolio's intrinsic value growth far outpacing its stock price performance.
The fund returned -2.41% for the quarter and -3.15% year-to-date, significantly underperforming the S&P 500 (quarter +2.30%, YTD +12.75%) and the Russell 1000 Value (quarter +2.61%, YTD +19.27%). The author acknowledges the short-term underperformance but emphasizes that the intrinsic value growth of the portfolio has been far superior to the stock price performance.
Performance Comparison: The fund returned -2.41% for the quarter, -3.15% year-to-date, 0.09% over one year; annualized returns were 5.41% over three years, 1.93% over five years, 4.62% over ten years, and 8.93% since inception. Over the same period, the S&P 500 returned +2.30% for the quarter and +12.75% year-to-date; the Russell 1000 Value returned +2.61% for the quarter and +19.27% year-to-date. The fund's P/V ratio is in the mid-50% range, cash is at 6.4%, and it holds 18 stocks.
The Author's Assessment of the Current Market Environment: The author believes the current market environment resembles 2000, not 2022. The author stated, "we believe that we are on the right track even if not all of our investments this year have had sufficient value per share growth. Our values have done materially better than the stock price scoreboard in 2026, consistent with both what we wrote earlier this year and a market like 2000." The author further stated, "we are confident that this will be another great time to be different."
Portfolio Logic in a High-Interest Rate Environment: The author notes that higher interest rates are a new macro variable, but the fund's holdings in financially strong companies can withstand the risk. The author emphasized, "Higher interest rates are the newest macro wildcard, but our financially strong companies will be able to weather this." The author believes the most important factor is how each holding builds per-share value and gets it recognized by the market.
Differential Performance of Two Groups of Holdings:
Quantifying the Contribution Difference Between the Two Groups: The author estimates the first group's drag on the portfolio is in the low hundreds of basis points (not the negative 700 bps implied by the market), while the second group (plus some early-year sales) should contribute approximately 500-1000 bps of positive momentum, rather than being flat for the full year. Combined, the author estimates that underlying business results should imply a mid-single-digit positive return; this is not the fund’s actual return. The author emphasized, "our earnings multiples – which were already attractive coming into the year – have gone down 10-20%, all while the earnings themselves have been further derisked. This is not normal, but it is our opportunity from here."
Engagement with Portfolio Companies: The author states they continue to engage with portfolio companies and believe this work will soon pay off, seeing results in several holdings—some publicly, some privately. Specific mention was made of Mattel, where multiple potential acquirers emerged after the quarter-end. The author noted, "The seeming lack of activity in the few months since we published our letter to the company was not due to a lack of effort from us behind the scenes."
Avantor was one of the quarter's top performers, with its stock price rising over 50%. The author believes the market is regaining confidence in the company's organic growth capabilities and CEO Emmanuel Ligner's turnaround plan. Its VWR distribution business returned to organic growth in Q2, and Ligner expects further acceleration. The bioprocessing business saw organic declines but improved orders. Ligner also expects Avantor to achieve revenue growth in 2027, similar to peers. M&A activity in the space has restarted (Bio-Techne was acquired at a healthy multiple), and news related to mRNA cancer vaccines boosted sentiment. The fund reduced its position as the stock price approached its estimate of value.
Biopharmaceutical company Regeneron delivered solid results, with core drug Dupixent's growth continuing to exceed the fund's and the market's expectations. The fund noted that the company increased its share buyback activity during Q2 when the stock was at a deeper discount. The market had positive expectations for Regeneron reaching a reset agreement with partner Sanofi over Dupixent, which was finalized after the quarter-end which the author believes increased Regeneron’s per-share value.
Diversified healthcare company Abbott Labs is a new holding for the fund (previously held in the 2010s), initiated in Q2, and has started strongly. Before the fund's investment, Abbott's earnings slightly missed expectations due to the digestion of the Exact Sciences acquisition and turbulence in the medtech and infant nutrition industries. Its stock price fell nearly 40% from its high last year to the fund's purchase price in Q2. Solid quarterly results reported in July suggest Abbott is on track to soon resume its decades-long history of high-single-digit to low-double-digit EPS growth, accompanied by a safe and growing dividend. The company is also beginning to move past unreasonable infant nutrition liabilities, further protecting downside risk. The author believes Abbott has historically spun off or sold businesses multiple times and may consider such actions again in the future, providing additional upside.
People Inc. and MGM Resorts were drags on the quarter. The fund's position weight in People Inc. is higher than in MGM. Early in the quarter, People Inc.'s earnings showed progress in simplifying the company, with MGM's regional business hitting all-time highs and Las Vegas revenue growing for a second consecutive quarter. However, late in the quarter, People Inc. withdrew its offer to acquire a majority stake in MGM, combined with weak near-term trends in Las Vegas, causing MGM's stock to fall sharply. The following day, news emerged that MGM was considering acquiring People Inc. The fund still believes a merger of the two companies makes sense and would enhance per-share value. The main issues likely revolve around the value and future of People Inc.'s assets beyond its MGM stake. The author believes there are creative ways to structure a new company and is in communication with both companies.
Building materials company Fortune Brands Innovations (FBIN) saw its stock price fall in Q3, giving back gains from Q2 that followed the appointment of new CEO Jesse Singh. In August, Singh lowered full-year earnings guidance due to external (rising interest rates) and internal reasons. Internally, he temporarily used expensive air freight to secure customer inventory until supply chain inefficiencies were resolved and decided to reinvest some tariff refunds into product development. The fund applauded both of these long-term, correct business decisions. The fund reduced its position when the stock strengthened in Q2 and added to it during the Q3 decline.
Supermarket operator Albertsons' quarterly report was negatively received by the market for multiple reasons. Its earnings and guidance missed expectations (same-store sales -0.8% vs. -0.5% expected), and it announced increased investment spending, leading to a 20% cut in full-year EPS guidance. Poor communication (CFO departure, unclear conference call explanations) exacerbated the negative sentiment. The fund recalls an original scenario of EPS/free cash flow of $2–$2.50 per share at a conservative earnings multiple, and a fallback scenario of $1.50–$2 per share using a 10x reference P/E. The author regards both scenarios as offering value relative to the then-current share price below $12. These are the author’s scenarios: $1.50–$2 is not stated company guidance, and 10x is a valuation assumption, not the actual trading multiple. The author believes that major shareholder Cerberus and several executives who bought shares after the sharp decline have the ability to improve operations and may consider a range of strategic options.
Timberland owner Rayonier had a quarter lacking company-specific news, with results in line with expectations, continuing share buybacks and paying a healthy dividend. In the short term, its stock price is linked to interest rates and lumber prices, both of which performed poorly at the end of the quarter. The fund views this as a long-term, irreplaceable asset. While not helpful for short-term absolute returns, the market has begun to recognize Rayonier's advantaged position, narrowing its valuation gap with the only publicly traded peer, Weyerhaeuser, consistent with the fund's view at the start of the year.
Toy, media, and consumer products company Mattel fell in Q3 after management indicated at a mid-September conference that 2026 guidance would be more back-end loaded. Late in the quarter and after, Ynon Kriez announced his departure, and Roger Lynch was appointed as the new CEO. Subsequently, the Wall Street Journal reported that Authentic Brands, a private company with a market cap over $20 billion, was interested in acquiring Mattel for over $20 per share, causing the stock to rebound. October also saw pressure from significant shareholder Ariel and rumors of interest from Zuru. The fund stated that Mattel has become a significant contributor to returns this month and will continue to follow up.
The fund purchased one new holding this quarter: Universal Music Group. The author believes this is a high-quality business with valuable music assets and durable long-term profitability, which the fund has successfully owned multiple times before as part of Vivendi. No holdings were exited this quarter. The fund continues to look for opportunities and is close to several potential new investments. The author notes that many economically sensitive stocks that drove the S&P 500's rally over the past 15 months have begun to decline, with some entering the fund's watchlist.
The fund stated that now is not the time for major portfolio adjustments due to recent underperformance. The author believes that as the portfolio's P/V (price-to-value) ratio has improved this year, their confidence in future returns has increased, and they believe the portfolio's defensiveness will protect downside risk while the S&P 500 is at elevated levels. The author hinted that positive developments similar to Mattel may lie ahead.
| Position | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Avantor | Reduced | After the stock rose over 50% and approached its valuation, the fund trimmed the position. | Stock rose over 50%; Q2 VWR distribution business returned to organic growth; bioprocessing order trends improved. |
| Abbott Labs | Bought in Q2 | The fund believes the stock, down nearly 40% from its high, presented a buying opportunity, with the company poised to return to high-single-digit to low-double-digit EPS growth. | Initiated in Q2; stock fell nearly 40% from last year's high to the Q2 purchase price; July quarter results were solid; the company has a history of spinning off or selling businesses. |
| Universal Music Group | New Position | The fund views this as a high-quality business with valuable music assets and durable long-term profitability, having previously held it successfully as part of Vivendi. | Purchased in the quarter; the fund has held it successfully multiple times before. |
| Fortune Brands Innovations (FBIN) | Added | The fund appreciates the new CEO's long-term decisions (using air freight to protect inventory, reinvesting tariff refunds) that caused short-term pressure, and added to the position during the Q3 stock decline. | Stock fell in Q3, erasing Q2 gains; CEO lowered full-year earnings guidance; the fund had trimmed in Q2 when the stock was strong. |
| People Inc. / MGM Resorts | Holding disclosed; quarterly trade not specified | The fund still believes a merger between the two companies makes sense and would enhance per-share value, and is in communication with both. | People Inc. withdrew its offer to acquire a majority stake in MGM; MGM is considering acquiring People Inc.; People Inc. position weight is higher than MGM. |
| Regeneron | Holding disclosed; quarterly trade not specified | The fund believes the company's performance is solid, core drug Dupixent growth exceeded expectations, buybacks have increased, and the reset agreement with Sanofi has boosted per-share value. | Increased buybacks in Q2 when the stock was at a deeper discount; reached a reset agreement with Sanofi on Dupixent. |
| Mattel | Holding disclosed; quarterly trade not specified | The fund notes Mattel has become a significant contributor to returns this month and will continue to monitor; acquisition rumors (Authentic Brands, etc.) drove a stock rebound. | Fell in Q3; Ynon Kriez departed, Roger Lynch appointed new CEO; Authentic Brands expressed interest in an acquisition above $20 per share; the fund had previously written to the company. |
| Albertsons | Holding disclosed; quarterly trade not specified | The fund believes the market overreacted; it considers EPS/free-cash-flow scenarios of $2–$2.50 and $1.50–$2 per share, using a 10x reference P/E for the latter, against a then-current share price below $12. | Same-store sales -0.8% (vs. -0.5% expected); full-year EPS guidance cut by 20%; the author discusses major shareholder Cerberus and executives who bought shares after the sharp decline. |
| Rayonier | Holding disclosed; quarterly trade not specified | The fund views this as a long-term irreplaceable asset, and the market is beginning to recognize its advantaged position, narrowing the valuation gap with Weyerhaeuser. | Results in line with expectations; continued share buybacks and a healthy dividend; stock price tied to interest rates and timber prices. |
| CNX | Holding disclosed; quarterly trade not specified | The fund notes its per-share value CAGR has exceeded 20% over the past five years. | Per-share value CAGR exceeded 20% over the past five years. |
| EXOR | Holding disclosed; quarterly trade not specified | The fund notes it announced buybacks and asset sales, with the strongest balance sheet in its history. | Announced buybacks and asset sales; strongest balance sheet in its history. |
| Magnum Ice Cream | Holding disclosed; quarterly trade not specified | The fund notes it will have greater strategic optionality after the spin-off restriction ends in December 2027. | Spin-off restriction ends in December 2027. |