Oakmark Global Select Fund - Investor Class
Average Annual Total Returns 12/31/19
Since Inception 10/02/06 7.88%
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 had a strong year of absolute and relative performance, returning 29.8% for the calendar year. The benchmark MSCI World Index returned 27.7% for the same one-year period. The Fund also outperformed for the recent quarter end, returning 11.7% compared to the Index return of 8.6%. Lastly, the Fund has returned an average of 7.9% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 6.3% over the same period.
Lloyds Banking Group, a dominant retail bank in the U.K., was the largest contributor to the Fund’s quarterly return. In October, the company’s share price soared on hopes that a new U.K. Prime Minister could help negotiate a Brexit deal between the U.K. and the European Union (EU). The uncertainty of Brexit has pressured the U.K. economy and Lloyds’ stock price for the past few years, despite relatively strong fundamental operating performance from the bank. Additionally, the company’s third-quarter results highlighted additional efficiency opportunities and management’s focus on creating value for shareholders. Moreover, we expect profitability to improve significantly in FY ‘20 as the company faces a material drop in non-operating expenses. Despite the share price rebound, we believe Lloyds’ shares still provide attractive value for our shareholders.
American International Group (AIG), one of the world’s largest insurance firms that is based in the U.S., was the only detractor to the Fund for the quarter. AIG issued third-quarter results that were slightly weaker than we had estimated. This was mostly due to higher than expected catastrophe losses and an actuarial adjustment in the company’s life insurance business that depressed quarterly earnings per share. However, AIG’s adjusted return on equity (ROE) reached 4.1% during the third quarter (compared with 2.4% in the year-ago period) and CEO Brian Duperreault remains confident that the company can achieve at least 10% core ROE by the end of 2021. Our investment thesis remains intact, and we believe AIG should reward shareholders over the long term.
During the quarter, we did not add or remove any companies from the portfolio. We did, however, swap approximately two-thirds of our non-voting Alphabet Class C shares for voting Class A shares as they were offered at a small discount to non-voting shares. We believe there should be a modest premium for the higher voting rights of the Class A shares and the swaps were done via like-kind exchange so there wasn’t a corresponding capital gain.
Geographically, 52% of the Fund’s holdings were allocated to equities in Europe and the U.K., while approximately 44% were invested in U.S. companies and 4% 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 10% of the Swiss franc exposure was hedged at quarter end.
The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund’s total net assets as of 12/31/19: Alphabet Cl A 5.5%, Alphabet Cl C 2.8%, American Intl Group 3.7% and Lloyds Banking Group 5.5%. 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.
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 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.
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 12/31/2019 unless otherwise specified.