Oakmark Global Select Fund: Third Quarter 2021

The Oakmark Global Select Fund returned 45.0% for the fiscal year ended September 30, 2021, outperforming the MSCI World Index, which returned 28.8%. For the most recent quarter, the Fund returned -1.7%, compared to the benchmark’s return of 0.0%. More importantly, the Fund has returned an average of 8.9% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 7.5% over the same period.

Alphabet, a U.S. communication services provider, was once again a top contributor for the quarter, solidifying its rank as a top contributing stock for the one-year period. The company’s financial results repeatedly exceeded expectations. In particular, its revenue grew faster than expected and its margin trends improved across all segments. In addition, management has executed $24.4 billion of stock repurchases so far in 2021. After further examination, we recently increased our estimate of Alphabet’s intrinsic value based on the company’s better than expected operating leverage and its notable efficiency improvements. As a result, we continue to believe that Alphabet is trading at a significant discount to its intrinsic value.

Chinese internet company Alibaba was a top detractor for both the quarter and the fiscal year ending September 30. Regulatory headwinds and heightened competition continued to challenge the company’s operating results. Earlier in 2021, the Chinese government fined Alibaba Group $2.8 billion—the largest antitrust penalty issued in the country’s history. The fine, which represents 4% of the company’s 2019 annual domestic revenue, was imposed because China’s State Administration for Market Regulation found that Alibaba’s merchant exclusivity requirements hindered competition. Later, the company’s share price plunged upon the release of fiscal full-year earnings, even though these were largely in line with our full-year estimates on an organic basis. Along with the earnings release, management announced it would reinvest all incremental profits in the current fiscal year, which disappointed investors. While this strategy will likely produce low or no near-term profit growth, management believes these investments will help grow the company’s user base over the long term. In addition, the cloud business grew more slowly than had been expected, which Alibaba attributed to a large global customer moving its non-China business to a competitor. While the company faces near-term challenges from regulatory pressures and a slowing macro environment, we believe it is meaningfully undervalued relative to our estimate of its intrinsic value.

During the quarter, we sold our Richemont (Switzerland) position as its share price approached our estimate of intrinsic value.

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 13% of the Swiss franc exposure was hedged at quarter end.

Geographically, we ended the quarter with approximately 54 % of the Fund’s investments in the U.S., 42% in the U.K. and Europe, and 4% in Asia.

We thank you for your continued support.

The securities mentioned above comprise the following preliminary percentages of the Oakmark Global Select Fund’s total net assets as of 09/30/21: Alibaba Group ADR 1.8%, Alphabet Cl A 12.3% and Richemont 0.0%. 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 Global Select Fund as of the most recent quarter-end.

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 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.