Commentary

Oakmark Fund: Third Quarter 2021

September 30, 2021

Oakmark Fund - Investor Class
Average Annual Total Returns 09/30/21
Since Inception 08/05/91 13.09%
10-year 16.33%
5-year 16.03%
1-year 59.18%
3-month 1.85%

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 increased 1.9% during the third quarter, compared to a 0.6% gain for the S&P 500 Index. For the fiscal year ending September 30, the Oakmark Fund increased 59.2%, besting the 30.0% gain for the S&P 500 Index. While our results over the past year were strong, at Oakmark we don’t focus on short-term performance. Instead, we use much longer time horizons to grade ourselves, and we encourage our investors to do the same.

As long-term value investors, we don’t make investments with the expectation that our thesis will play out quickly. More important to our process is the price we’re paying compared to what we believe a business is worth. Our investments aren’t required to have “identifiable catalysts” and won’t be accompanied with pre-determined expiration dates. Of course, we prefer if our value gaps close quickly—and sometimes they do—but the reality is that we invest in businesses without knowing precisely when the value will become properly reflected in the stock price. Our ability to capitalize on investment opportunities with attractive payoffs that may reside further into the future is one of our most important competitive advantages.

Our highest contributing securities for the fiscal year were Ally Financial and Capital One Financial, and our largest detractors were Humana and Paccar. That said, no individual position detracted more than 15 basis points from performance, and our strongest individual contributor added nearly 400 basis points during the period. From a sector perspective, six of the Fund’s top-10 contributors were financials, our strongest performing sector by a wide margin over the past year. We continue to find our holdings in this sector attractive as many of our financials trade for high-single-digit multiples of normalized earnings and, in several instances, at or around their tangible net asset value.

For the quarter, our largest contributing securities were Gartner and Alphabet (Class A), and our largest detractors were General Motors and DXC Technology. From a sector perspective, our biggest contributions came from our holdings within the financials and communication services sectors, and our smallest contributions came from industrials and consumer staples. Both Gartner, a market leader in IT research, and Alphabet, the parent company of Google, reported strong quarterly results with both revenue growth and margin expansion that comfortably exceeded consensus expectations. General Motors’ stock price weakness was most likely attributable to supply-chain disruptions that have negatively impacted full-year expectations. We believe these headwinds will prove transitory and largely immaterial relative to our estimate of intrinsic value. Lastly, while much work remains, we believe the stock price of DXC Technology fails to properly reflect the progress the company has made on its business transformation initiatives under new leadership. Each of these holdings remain in the Fund. There were no portfolio eliminations during the period.

We added just one new position to the portfolio during the third quarter: Paccar. We believe Paccar is a well-managed, high-quality global commercial vehicle manufacturer that trades at a low multiple of normalized earnings. Paccar has consistently grown its earnings power via market share gains, improved margins and above-average growth of its highly profitable parts and services business. Despite operating in a cyclical industry, the company has been profitable for 82 consecutive years while steadily generating higher peak and trough EPS through each successive cycle. We had the opportunity to purchase Paccar at what we believe is an attractive price due to transitory concerns related to Covid-19-induced supply chain pressures, elevated cyclical uncertainty and the longer term impact of powertrain electrification on the business. We believe our long time horizon provides a significant advantage as we are able to look through the short-term headwinds and focus more on what Paccar should earn on a mid-cycle basis. Furthermore, while we do expect increased commercial vehicle electrification over time, we believe the company is well positioned to integrate new propulsion systems to meet customer demands.

We appreciate your continued support and confidence in the Oakmark Fund.

The securities mentioned above comprise the following preliminary percentages of the Oakmark Fund’s total net assets as of 09/30/21: Ally Financial 3.8%, Alphabet Cl A 3.7%, Capital One Financial 3.7%, DXC Technology 1.8%, Gartner 2.9%, General Motors 1.9%, Humana 2.1% and PACCAR 0.7%.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.

EPS refers to Earnings Per Share and is calculated by dividing total earnings by the number of shares outstanding.

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 09/30/2021 unless otherwise specified.

Bill Nygren- Portfolio Manager- Headshot
William C. Nygren, CFA

Portfolio Manager

Kevin Grant- Portfolio Manager- Headshot
Kevin Grant, CFA

Portfolio Manager

Michael A. Nicolas - Portfolio Manager - portrait
Michael A. Nicolas, CFA

Portfolio Manager