For several quarters, we’ve highlighted that market gains have been dominated by momentum and growth. Stocks that were rising kept rising, while laggards fell further behind. This created a historically wide gap in P/E multiples between our portfolio and the S&P 500—and, more importantly, left Oakmark Fund’s P/E well below even that of the Russell 1000 Value Index.
Our conclusion was straightforward: since we were “more value” than the value indices, Oakmark should shine when the Russell Value eventually outperformed the S&P. It finally outperformed last quarter: the S&P 500 declined more than 4% while the Russell 1000 Value rose by over 2%. Did Oakmark outperform the value index as expected? No. We did better than the S&P but still declined. What happened?
OPINION PIECE. PLEASE SEE ENDNOTES FOR IMPORTANT DISCLOSURES.
Important Disclosures
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.
The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change and may change based on market and other conditions and without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.
Certain comments herein are based on current expectations and are considered “forward-looking statements.” These forward looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.
The price-to-earnings ratio (“P/E”) compares a company’s current share price to its per-share earnings. It may also be known as the “price multiple” or “earnings multiple”, and gives a general indication of how expensive or cheap a stock is. Investors should not base investment decisions on any single attribute or characteristic data point.
Reference to the Fund’s forward P/E is based on the weighted average P/E of all underlying stocks in the Fund’s portfolio.
The S&P 500 Index is a float-adjusted, capitalization-weighted index of 500 U.S. large-capitalization stocks representing all major industries. It is a widely recognized index of broad, U.S. equity market performance. Returns reflect the reinvestment of dividends. This index is unmanaged and investors cannot invest directly in this index.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. This index is unmanaged and investors cannot invest directly in this index.
Investing involves risk; principal loss is possible. There is no guarantee the Fund’s investment objective will be achieved. Value stocks may fall out of favor with investors and underperform growth stocks during given periods. The Fund’s portfolio tends to be invested in a relatively small number of stocks. As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund’s volatility. These and other risk considerations are described in detail in the Fund’s prospectus.
Harris Associates Securities L.P., Distributor, Member FINRA.
