Oakmark Select Fund – Investor Class
Average Annual Total Returns 03/31/17
Since Inception 11/01/96 12.81%
Gross Expense Ratio as of 09/30/16 was 0.98%
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.
For the quarter, the Oakmark Select Fund increased 3.0%, compared to a 6.1% gain for the S&P 500 Index. While good on an absolute basis, we aren’t satisfied by the relative return this quarter, but understand that our investment process of buying companies that have a clear path to per-share value growth, that are run by strong management teams, and that trade at significant discounts to intrinsic value works well on average and over time, but not necessarily every quarter.
Nearly half of the underperformance relative to the S&P 500 came from our two energy holdings as oil and gas prices pulled back somewhat during the quarter. The three largest detractors—Apache (-19%), Chesapeake Energy (-15%) and General Electric (-5%)—all have direct or indirect exposure to oil and gas prices. Energy price volatility notwithstanding, the fundamentals of all three companies are largely tracking with our expectations. Furthermore, recent oil and gas property transactions confirm our belief that Apache and Chesapeake Energy are trading at substantial discounts to fair value, and in the case of Chesapeake, insiders have been buying stock. We added to the Fund’s holdings in both Chesapeake and Apache during the quarter.
The three largest contributors to performance were Fiat Chrysler (+20%), CBRE Group (+10%) and Oracle (+16%). There was no identifiable catalyst for the performance at Fiat or CBRE beyond these well-run companies continuing to demonstrate good fundamentals. Often times, this is enough for stocks that are just too cheap. Oracle’s latest earnings report showed continued progress managing its transition to more of a cloud-based software model. This strong performance was consistent with our expectations, but appeared to have positively surprised others.
There were no new additions or deletions from the portfolio in the quarter. We added significantly to our MGM investment after what we believe was an overreaction to its earnings release, and we trimmed JPMorgan and Bank of America after continued strong price performance had somewhat narrowed their discounts to value.
Thank you for your continued investment in the Fund.
The securities mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 03/31/17: Apache Corp. 4.6%, Chesapeake Energy Corp. 4.1%, General Electric Co. 5.5%, Fiat Chrysler Automobiles N.V. 4.9%, CBRE Group, Inc., Class A 7.0%, Oracle Corp. 4.3%, MGM Resorts International 4.8%, JPMorgan Chase & Co. 3.9% and Bank of America Corp. 4.0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
Click here to access the full list of holdings for the Oakmark Select Fund as of the most recent quarter-end.
The S&P 500 Total Return Index is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market. All returns reflect reinvested dividends and capital gains distributions. This index is unmanaged and investors cannot invest directly in this index.
Because the Oakmark 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.
Oakmark Select Fund: The stocks of medium-sized companies tend to be more volatile than those of large companies and have underperformed the stocks of small and large companies during some periods.
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 03/31/2017 unless otherwise specified.