Oakmark Fund - Investor Class
Average Annual Total Returns 06/30/17
Since Inception 08/05/91 12.82%
10-year 8.70%
5-year 15.55%
1-year 27.03%
3-month 3.82%
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 3.8% in the second quarter of 2017, which was ahead of the 3.1% gain for the S&P 500 Index. This was the fourth quarter in a row in which the Oakmark Fund hit an all-time high adjusted NAV. Broader market strength continued in the second quarter despite lingering concerns about healthcare and tax reform, as well as a drop in energy commodity prices. As was the case in the first quarter, weakening oil prices hurt the performance of our energy holdings during the second quarter, but we remain confident in the long-term outlook for these businesses. With no change in our fundamental outlook for our energy businesses, the lower share prices represented an opportunity to increase the return potential of the portfolio, and accordingly, we added to most of our energy holdings during the quarter.
Our biggest contributing sectors were financials and information technology, and our lowest contributing sectors were energy and industrials. Our top individual contributors were Citigroup, Nestlé and Alphabet. Citigroup—and many of our other financial holdings—benefited late in the quarter from generally favorable results from the Federal Reserve’s capital analysis review. We are pleased that Citigroup, as well as our other financial holdings, will have greater flexibility to return capital to shareholders through higher dividends and larger share repurchase programs. Alphabet produced a total return of 10%, primarily because of strong first quarter results. The company’s revenue was up over 20% during the quarter, and Alphabet disclosed that YouTube achieved one billion hours watched per day. We have said that YouTube represents a source of unappreciated value within Alphabet, and this disclosure helped to validate our thinking. Our largest detractors were Anadarko, National Oilwell Varco and General Electric. We initiated a new position in Charter Communications during the quarter, and we didn’t eliminate any positions.
Charter Communications (CHTR – $331)
Charter gives us the opportunity to invest in what we believe is a strong business with exceptional management at an attractive price. Because of their valuable infrastructure, U.S. cable companies are benefiting from strong demand for high-speed Internet access. In many markets, Charter has the only fiber-rich network capable of providing consumers with the high Internet speeds they demand. We believe that new competitors are unlikely to enter the market as they will have to invest massive amounts of capital for fractional penetration. This should provide a long runway for continued growth at Charter. Chairman and CEO Tom Rutledge earned an excellent reputation for execution at Cablevision, and he has achieved meaningful progress with the legacy Charter business. Corporate governance at Charter is influenced by Dr. John Malone. We’ve had tremendous success investing alongside Dr. Malone over the past 30+ years, and we greatly value his strategic vision and capital allocation skills. After reporting its first quarter earnings, Charter’s stock price lagged behind the market as investors appeared to be frustrated with the pace of operational improvement at Time Warner Cable. Our experience investing in turnarounds reminds us that it takes more than a couple of quarters to make meaningful progress. We take a more positive, longer term view of the business, and Charter is valued at a discount to peer companies.
The securities mentioned above comprise the following percentages of the Oakmark Fund’s total net assets as of 06/30/17: Citigroup, Inc. 3.6%, Nestlé ADR 2.2%, Alphabet Inc., Class C 3.3%, Anadarko Petroleum Corp. 0.9%, National Oilwell Varco, Inc. 1.2%, General Electric Co. 2.3% and Charter Communications 0.9%. 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.
All information provided is as of 06/30/17 unless otherwise specified.
