Oakmark Fund - Investor Class
Average Annual Total Returns 03/31/16
Since Inception 08/05/91 12.35%
Gross Expense Ratio as of 09/30/15 was 0.85%
Past performance is no guarantee of future results. The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted. The investment return and principal value vary so that an investor’s shares when redeemed may be worth more or less than the original cost. To obtain the most recent month-end performance data, view it here.
The Oakmark Fund declined 1% in the first quarter of 2016, and it lagged behind the 1% gain for the S&P 500. While the broader market increased only modestly from the first day of the quarter to the last, a closer look shows heightened intra-quarter volatility, with a 10% decline during the first half of the quarter followed by a swift recovery during the second half. Not surprisingly, oil prices followed a similar pattern, and the Fund’s energy stocks increased from their early quarter lows. Interest rates remained at decades-low levels during the quarter, fueling “lower for longer” concerns, which along with worries about energy exposure added further pressure to the Fund’s financial stocks. At Oakmark, we remain focused on assessing the long-term underlying value of businesses, which we believe are much less volatile than stock prices. As such, the financial sector’s pronounced weakness has made the segment more attractive to us, and despite recent share price declines, financial companies still represent almost one-third of the Fund’s equity holdings.
Our biggest contributing sectors for the first quarter were industrials and information technology, while Whirlpool and Cummins were the top individual contributors. The Fund’s worst contributing sectors for the quarter were financials and materials, and our worst contributing securities were Bank of America and Citigroup.
There were no new additions to the portfolio during the first quarter, and we eliminated positions in General Mills, American Express, Union Pacific and Chesapeake Energy. General Mills has provided favorable returns since we added the stock in early 2014, and we sold our position as the share price approached our estimate of intrinsic value. When a business doesn’t meet our expectations, we reduce our intrinsic value estimate accordingly, and the remaining three eliminations fall into that category. Selling our positions in American Express, Union Pacific and Chesapeake Energy allowed us to take tax losses while reinvesting proceeds into businesses in which we have more long-term confidence. Specifically, Chesapeake Energy has been a poor performer as oil prices have dropped from over $100 per barrel to less than $40 per barrel. Therefore, we swapped our Chesapeake holdings for other energy holdings that are also undervalued based on expected cost-cutting and higher commodity prices, but have what we believe are stronger balance sheets.
The holdings mentioned above comprise the following percentages of the Oakmark Fund’s total net assets as of 03/31/16: Whirlpool Corp. 2.3%, Cummins, Inc. 2.0%, Bank of America Corp. 3.0%, Citigroup, Inc. 2.6%, General Mills, Inc. 0%, American Express Co. 0%, Union Pacific Corp. 0%, and Chesapeake Energy Corp. 0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
Click here to access the full list of holdings for The Oakmark Fund as of the most recent quarter-end.
The S&P 500 Total Return Index is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market. All returns reflect reinvested dividends and capital gains distributions. This index is unmanaged and investors cannot invest directly in this index.
The Oakmark 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.
The discussion of the Fund’s investments and investment strategy (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) represents the Fund’s investments and the views of the portfolio managers and Harris Associates L.P., the Fund’s investment adviser, at the time of this letter, and are subject to change without notice.