Oakmark Fund - Investor Class
Average Annual Total Returns 03/31/17
Since Inception 08/05/91 12.78%
10-year 8.97%
5-year 13.88%
1-year 23.99%
3-month 4.11%
Gross Expense Ratio as of 09/30/16 was 0.89%
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 increased 4.1% in the first quarter of 2017, hitting an all-time high adjusted NAV for the third quarter in a row. The Oakmark Fund lagged behind the S&P 500’s strong 6.1% gain. Although the S&P 500 also hit new highs during the first quarter, the momentum from January and February faded in March as concerns grew over the Trump administration’s plans for healthcare reform, new infrastructure spending and tax reform. Oil commodity prices also weakened in March, which hurt the performance of our energy holdings during the quarter, but we believe supply-and-demand dynamics will lead to higher commodity price trends over the long term. The information technology sector was especially strong during the first quarter, with the NASDAQ Index gaining 10.1%. In addition, the information technology sector has provided the highest contribution to return of the Oakmark Fund over the past three years, with several holdings returning more than 20% annually (Apple, Microsoft and Texas Instruments).
Our best contributing sectors for the first quarter were information technology and consumer staples. Apple and Unilever were the best individual performers, up 25% and 22%, respectively, and the information technology sector as a whole returned 8%. Our lowest contributing sectors for the quarter were energy and consumer discretionary. Our worst individual securities for the quarter were Apache and Anadarko. During the quarter, we added new positions in Chesapeake Energy, Delphi Automotive and Moody’s (see below). We eliminated positions in Halliburton and Sanofi. Halliburton was sold when it reached our estimate of intrinsic value, and Sanofi was sold because we believed we had higher-conviction, higher-return options within the healthcare sector.
Chesapeake Energy Corp. (CHK – $6)
The downturn in oil and gas prices since late 2014 has created an opportunity to buy well-managed exploration and production companies at discounted values. We believe Chesapeake Energy is among the best managed oil and gas companies and is trading well below the value of its assets. The company has sizeable acreage holdings across the U.S., and its management is focused on developing these assets in a cost-effective and high-return manner. The team has successfully navigated the commodity price downturn while prioritizing the interests of equity holders, and we expect this shareholder-friendly team will continue to create value in an improving commodity price environment. With the enterprise trading at a substantial discount to our estimate of asset value, we believe Chesapeake is an attractive holding.
Delphi Automotive PLC (DLPH – $80)
Delphi is an automobile parts supplier that is well positioned for the secular trends that will continue to drive the auto industry. We believe Delphi will benefit from increasing governmental regulations for safety, fuel efficiency and emissions control, as well as rapidly growing consumer demand for vehicle connectivity. Since Delphi’s initial public offering in 2010, we find the company has generated robust sales and earnings growth along with ample free cash flow. Despite strong fundamental performance, the stock trades at a discount to the market P/E as well as our estimate of intrinsic value due to concerns about the U.S. auto cycle, short term uncertainty in China and an uncharacteristic downward revision to earnings guidance in 2016. We believe these headwinds will prove temporary and that the company’s performance will improve.
Moody’s Corp. (MCO – $112)
Moody’s provides essential information to the world’s capital markets. We have a long history with Moody’s, dating back to the 1990s when it was a part of Dun & Bradstreet. The stock briefly traded for less than 17x 2018 earnings estimates because investors feared that rising interest rates and changing tax policies would depress debt issuance. Although such events would likely result in slower growth in the short term, we believe the company’s long-term prospects remain compelling. Bonds issued with a Moody’s rating pay meaningfully lower interest rates than those without a Moody’s rating, and the price paid to Moody’s is much lower than the interest savings the issuer realizes. We believe this will create consistent demand for bond ratings as debt markets grow. Management is cognizant of the value that the Moody’s rating provides, and they are able to steadily raise prices year after year. In our view, Moody’s is a great business with growing profits, run by a management team we’ve known and respected for years, and the shares trade at a price that is well below our estimate of intrinsic value.
The securities mentioned above comprise the following percentages of the Oakmark Fund’s total net assets as of 03/31/17: Apple, Inc. 2.7%, Microsoft Corp. 1.5%, Texas Instruments, Inc. 2.4%, Unilever PLC 2.2%, Apache Corp. 2.2%, Anadarko Petroleum Corp. 1.8%, Chesapeake Energy Corp. 0.7%, Delphi Automotive PLC 1.0%, Moody’s Corporation 0.7%, Halliburton Co. 0%, Sanofi 0% and Dun & Bradstreet 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 NASDAQ Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the NASDAQ stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all NASDAQ listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.
The Price-Earnings Ratio (“P/E”) is the most common measure of the expensiveness of a stock.
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.
All information provided is as of 03/31/17 unless otherwise specified.
