Oakmark Fund - Investor Class
Average Annual Total Returns 09/30/17
Since Inception 08/05/91 12.93%
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 5.8% during the third quarter, bringing the increase to 23.8% for the fiscal year ended September 30. The Fund’s strong performance outpaced S&P 500 gains of 4.5% for the third quarter and 18.6% for the past 12 months. This was a very good quarter and fiscal year for the Oakmark Fund, and the Fund hit an all-time high adjusted NAV for the fifth quarter in a row. As value investors, we patiently wait for the gap between a company’s stock price and our estimate of intrinsic value to close, and over the past 12 months, the gaps have narrowed. We are pleased that the strongest contribution has come from our highest weighted sectors, financials and information technology.
Our highest contributing security for the fiscal year was Bank of America, which produced a total return of 64%. Bank of America has benefited from substantial cost reductions, rising interest rates, strong core loan growth and higher market share. Although the share price has risen considerably over the past 12 months, we believe the business is still attractively valued—at just 10x our estimate of normalized earnings. Our largest individual detractor for the fiscal year was Apache, which produced a total return of -27%. Energy companies remain out of favor, but we believe these holdings are among the most attractively valued in the Oakmark portfolio when considering long-term oil supply-and-demand dynamics.
For the quarter, our biggest contributing sectors were information technology and financials, and our lowest contributing sectors were health care and energy. It is important to note that health care and energy are also among our lowest weighted sectors. Our top individual contributors were Fiat Chrysler (+69%) and Texas Instruments (+17%). Fiat Chrysler produced a total return of 69% during the third quarter. The company is showing continued strong operating performance and impressive profitability improvement. We believe Fiat Chrysler has the best management team in the business with a strong track record of allocating capital efficiently. Our largest individual detractors for the quarter were General Electric (-10%) and Medtronic (-11%). Despite its weak near-term share price performance, we believe General Electric is valued at a substantial discount to intrinsic value due to stale investor perceptions of the company, and we increased our position size during the quarter. We initiated a new position in Netflix during the quarter (see Bill’s commentary), and we didn’t eliminate any positions.
The securities mentioned above comprise the following percentages of the Oakmark Fund’s total net assets as of 09/30/17: Bank of America Corp. 2.6%, Apache Corp. 1.9%, Fiat Chrysler Automobiles N.V. 2.2%, Texas Instruments, Inc. 2.4%, General Electric Co. 2.6%, Medtronic, Inc. 1.0%, and Netflix 1.3%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
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 09/30/17 unless otherwise specified.