Oakmark Global Select Fund - Investor Class
Average Annual Total Returns 12/31/17
Since Inception 10/02/06 9.12%
Gross Expense Ratio as of 09/30/17 was 1.19%
Net Expense Ratio as of 09/30/17 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.
Oakmark Global Select Fund returned 3.0% for the quarter ended December 31, 2017, underperforming the MSCI World Index’s 5.5% return. For the calendar year, the Fund returned 21.2%, underperforming the MSCI World Index’s return of 22.4%. More importantly, the Fund has returned an average of 9.1% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 6.0% over the same period.
CNH Industrial, a global agricultural and construction equipment manufacturer, was the top contributor for the quarter. CNH’s quarterly earnings reports have shown an ongoing improvement over the past 12 months. Investors reacted positively to third-quarter earnings released in October, as results exceeded consensus estimates. This strong result was primarily driven by CNH’s core agricultural equipment segment, where revenue increased organically by over 9% and operating profit increased by over 34%, compared to the previous year. Furthermore, management raised its full-year earnings and revenue guidance. During the quarter, Fitch also upgraded CNH’s debt to investment grade. CNH is now rated investment grade by two of the three ratings agencies, making its bonds eligible for investment-grade indexes, which will lead to lower spreads. We remain optimistic that CNH’s improving trends will continue.
General Electric (GE), a global producer of industrial, household and medical goods, was the largest detractor for the quarter. Share prices were hurt by disappointing third-quarter results, several analysts’ downgrades and news of CFO Jeffrey Bornstein’s departure. We believe Mr. Bornstein’s exit indicates that newly appointed CEO John Flannery is quickly establishing a strong culture of accountability and that “business as usual” will no longer be tolerated. Newly appointed CFO Jamie Miller has held multiple positions at GE, most recently as head of GE Transportation. In mid-November, Flannery announced a “reset” during which he established a lower base for the company’s earnings by cutting 2018 earnings guidance and dividends by 50%. We expect Flannery to reduce costs aggressively, which should improve earnings. We like that GE’s business model includes manufacturing and selling original equipment as well as offering long-duration service contracts for that equipment, which provides ongoing revenue streams from its client base. GE has been a very frustrating holding, as business fundamentals have lagged our expectations. However, we continue to remain shareholders because we believe the stock has declined more than warranted by the fundamentals.
Geographically, 48% of the Fund’s holdings were invested in U.S.-domiciled companies as of December 31, while approximately 52% were allocated to equities in Europe and the U.K.
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 14% of the Swiss franc exposure was hedged at quarter end.
We would like to thank our fellow shareholders for your continued support. We wish you all a happy and prosperous new year!
The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund’s total net assets as of 12/31/17: CNH Industrial NV 7.0% and General Electric Co. 2.9%. 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 28, 2018. Harris Associates has agreed to continue the advisory fee waiver agreement through January 28, 2019.
The MSCI World Index (Net) is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of developed markets. This benchmark calculates reinvested dividends net of withholding taxes using Luxembourg tax rates. 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 12/31/2017 unless otherwise specified.