Oakmark Global Select Fund - Investor Class
Average Annual Total Returns 03/31/19
Since Inception 10/02/06 7.15%
Gross Expense Ratio as of 09/30/18 was 1.19%
Net Expense Ratio as of 09/30/18 was 1.12%
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 Global Select Fund returned 12.7% for the quarter ended March 31, 2019, slightly outperforming the MSCI World Index, which returned 12.5%. Importantly, the Fund has returned an average of 7.2% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 5.6% over the same period.
Lloyds Banking Group, the dominant retail bank in the U.K., was the top contributor for the quarter, returning 23%. During the quarter, Lloyds announced underlying 2018 fiscal-year results that were largely in line with our expectations. The group also announced a new GBP 1.75 billion share repurchase program for 2019, which was larger than expected and an increase from its GBP 1 billion of repurchases in 2018. Additionally, Lloyds has guided for 14-15% return on tangible equity and promised further operating expenditure reductions for 2019. While the U.K.’s decision to withdraw from the European Union has caused an outsized share price decline in previous periods, we believe the most recent results and share price gains support our investment thesis and believe that the bank’s intrinsic value remains largely intact.
Another large contributor for the quarter was Apache, a U.S.-based oil and gas exploration and production company. The company reported great results during the quarter, in our opinion, and it is growing production more than expected, despite spending less on capital expenditures than had been forecast. This is a great combination of factors for a company in the energy space, which is notorious for capital inefficiency, and it should lead to excellent cash flows over time. Additionally, management announced plans to repurchase 2.5% of shares and return at least 50% of free cash flow and asset sale proceeds to shareholders going forward. Despite the stock’s rally, we still believe it remains quite inexpensive.
During the quarter, we sold our investment in WPP, a U.K.-based marketing and advertising company, and used the proceeds to buy Samsung Electronics, South Korea’s top electronics company and a world leader in manufacturing semiconductors. We believe Samsung provides a better risk-return profile for our shareholders. We also sold our shares of Wabtec, a U.S.-based transportation and logistics company, which we received as part of a corporate action related to our holding of General Electric. Samsung and Wabtec were owned for brief periods during the quarter and detracted slightly from performance. No other holdings detracted from performance for the quarter.
Geographically, 48.7% of the Fund’s holdings were allocated to equities in Europe and the U.K., while approximately 45.1% were invested in U.S. companies and 6.2% in Asian equities.
We continue to believe the Swiss franc is overvalued versus the U.S. dollar. As a result, we defensively hedged a portion of the Fund’s exposure. Approximately 19% of the Swiss franc exposure was hedged at quarter end.
We thank you, our shareholders, for your continued support and confidence.
The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund’s total net assets as of 03/31/19: Apache 3.8%, General Electric 2.0%, Lloyds Banking Group 6.8%, Samsung Electronics 2.9%, Wabtec 0% and WPP 0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
The net expense ratio reflects a contractual advisory fee waiver agreement through January 27, 2020.
The MSCI World Index (Net) is a free float-adjusted, market capitalization-weighted index that is designed to measure the global equity market performance of developed markets. The index covers approximately 85% of the free float-adjusted market capitalization in each country. This benchmark calculates reinvested dividends net of withholding taxes. This index is unmanaged and investors cannot invest directly in this index.
Because the Oakmark Global Select Fund is non-diversified, the performance of each holding will have a greater impact on the Fund’s total return, and may make the Fund’s returns more volatile than a more diversified fund.
The percentages of hedge exposure for each foreign currency are calculated by dividing the market value of all same-currency forward contracts by the market value of the underlying equity exposure to that currency.
Investing in foreign securities presents risks that in some ways may be greater than U.S. investments. Those risks include: currency fluctuation; different regulation, accounting standards, trading practices and levels of available information; generally higher transaction costs; and political risks.
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 03/31/2019 unless otherwise specified.