Oakmark Fund - Investor Class
Average Annual Total Returns 03/31/21
Since Inception 08/05/91 12.93%
10-year 13.57%
5-year 15.83%
1-year 87.43%
3-month 15.52%
Gross Expense Ratio: 0.93%
Net Expense Ratio: 0.91%
Expense ratios are based on estimated amounts for the current fiscal year; actual expenses may vary.
The net expense ratio reflects a contractual advisory fee waiver agreement through January 27, 2022.
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 produced a 15.5% return during the first quarter, which compares to the S&P 500 Index’s return of 6.2% for the same period. The economic recovery that began late last year carried into the first quarter, benefitting many of our cyclical holdings. In a reversal from what transpired during the first quarter of 2020, both interest rates and oil prices increased meaningfully during the recent quarter, helping many of our financial and energy holdings. Indeed, our worst performing sectors during 2020 are among our best performers year to date (financials, energy) and our holdings in these sectors still trade at healthy discounts to our intrinsic value estimates.
Our highest contributors during the first quarter were EOG Resources and Ally Financial and our largest detractors were Netflix and Charter Communications. No individual position cost the Fund more than 20 basis points of performance. Each sector contributed to the Fund’s performance during the period and the strongest returns were generated by our energy, real estate and financial holdings. As often happens during a cyclical recovery, our holdings that withstood the initial downturn the best, such as those within the communication services and technology sectors, were some of our weakest performers during the most recent quarter.
We initiated a new position in Altria, which commands roughly 50% of the cigarette and smokeless tobacco market in the U.S. Both of these markets are duopolies that we believe have exhibited strong pricing power over time. While the shares trade at a low multiple of reported earnings, Altria also owns valuable stakes in other non-core businesses, including ~10% of AB InBev, 35% of Juul and 45% of Cronos. Excluding the values of these stakes and their respective earnings contribution, we were able to purchase shares of Altria for less than seven times our estimate of next year’s earnings. This compares to other consumer brands with less favorable earnings growth profiles that trade for three times Altria’s multiple. The company also has several promising reduced-risk products that may appeal to tobacco users, including On! and iQOS. We believe these products position the company well to help consumers slowly transition to a tobacco-free future. We expect management to return the vast majority of future earnings to shareholders given the company’s strong balance sheet, high free cash flow conversion and limited capital requirements.
We elected to retain a position in ConocoPhillips following its all-stock acquisition of portfolio holding Concho Resources after determining that the combined entity was nearly as undervalued as stand-alone Concho. We believe Conoco is one of the highest quality independent oil producers in the world today. The company has decades of low-cost drilling inventory in attractive oil basins, minimal leverage and industry-leading returns on invested capital. Conoco management has built this enviable competitive position through years of shrewd capital allocation and efficient operations. This includes a history of accretive divestitures and opportunistic acquisitions, the latest example being Concho. For Conoco, the Concho deal adds some of the highest quality acreage in the Permian Basin at an attractive all-in cost, with an opportunity to create incremental value by eliminating duplicative costs and monetizing excess acreage. We believe this value-focused approach to both acquisitions and divestitures is rare in oil and gas and we are pleased to invest alongside these stewards of capital. The shares are priced at a double-digit free cash flow yield and a discount to peers on most earnings metrics, so we took advantage of the opportunity to own the business at an attractive price.
Aptiv and Parker Hannifin approached our estimates of intrinsic value and were, therefore, eliminated during the period. Both companies were longstanding investments of the Fund and produced successful outcomes. We continue to believe that Aptiv is a well-positioned auto supplier that is likely to continue outgrowing light vehicle production for the foreseeable future, but this dynamic is now more fully appreciated by the market. We believe Parker Hannifin, one of our longest tenured positions, is a high-quality, well-managed industrial with strong competitive positions in good end markets. However, after the market price reflected these positives, we elected to sell to pursue more attractive alternatives that were priced at steeper discounts to our estimates of intrinsic value.
We thank you, our fellow shareholders, for your investment and continued support of the Oakmark Fund.
The securities mentioned above comprise the following percentages of the Oakmark Fund’s total net assets as of 03/31/21: AB InBev 0.0%, Ally Financial 4.0%, Altria 1.0%, Aptiv 0.0%, Charter Communications Cl A 2.0%, Concho Resources 0.0%, ConocoPhillips 0.8%, Cronos 0.0%, EOG Resources 2.9%, Juul 0.0%, Netflix 2.0% and Parker Hannifin 0.0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
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 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 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 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.
All information provided is as of 03/31/2021 unless otherwise specified.
