Oakmark Select Fund - Investor Class
Average Annual Total Returns 12/31/14
Since Inception 11/01/96 13.65%
10-year 8.25%
5-year 17.28%
1-year 15.39%
3-month 3.39%
Gross Expense Ratio as of 09/30/14 was 0.95%
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 Select Fund increased 3% for the quarter, compared to 5% for the S&P 500 Index. For all of calendar 2014, the Oakmark Select Fund returned 15%, compared to 14% for the S&P 500. We’re always happy to produce a return for our shareholders in excess of the S&P 500, an achievement which proved particularly challenging for many investors in 2014; this modest outperformance ranked the Fund in the 6th percentile of its Morningstar peer group.
Our portfolio has been heavily invested in information technology and financial services stocks, and these sectors provided our four largest positive contributors to Fund performance in the quarter: MasterCard, Oracle, FNF Group, and TE Connectivity. Our intrinsic value estimates for these companies are still comfortably in excess of their current market values, and we believe they still merit inclusion in the portfolio.
Our worst quarterly performer by far was Apache, down 33%, as oil prices fell dramatically. No other stock in the Fund declined even 10% this quarter. Our assessment of Apache’s business value is based upon a long-term normal oil price in the mid-$70’s, and while a decline in near-term commodity prices reduced our estimate of value due to lost interim cash flows, the stock market’s punishment of the stock has significantly exceeded what we think is the true change in the company’s underlying business value. We remain confident that Apache’s management team is properly thinking about the ways to increase the per-share value of the company, as evidenced by the continued sale of international assets at prices near our estimate of intrinsic value, with proceeds used to purchase undervalued Apache stock. We took advantage of the stock’s sell-off to add to our position.
As the price of many energy-related equities has fallen, their attractiveness has increased. As such, our one new position in the Fund this quarter is Chesapeake Energy, an energy exploration and production company. We believe the company’s prior management team left the business flush with high-quality assets, but financially overextended and operationally inefficient. Over the past two years, the board of directors and executive management team were replaced with new, shareholder-oriented leaders. This new team quickly began overhauling Chesapeake by reducing leverage, simplifying the company’s financial structure, and refocusing capital allocation on the highest return uses. Chesapeake’s shares are trading at less than the company’s book value and at a big discount to our estimate of intrinsic value. We see this as a bargain price for such high-quality oil and gas assets run by what we believe is a shareholder-friendly management team.
During the quarter, we eliminated our TRW Automotive Holdings position, which was trading at full valuation due to its pending acquisition by ZF Friedrichshafen AG, a deal discussed at length in Bill Nygren’s 3Q14 Market Commentary piece.
Thank you for your continued investment in our Fund, and best wishes for a happy and prosperous 2015.
As of 12/31/14, MasterCard represented 7.4%, Oracle 6.6%, FNF Group 4.1%, TE Connectivity 5.1%, Apache Corp.7.4%, Chesapeake Energy 3.5%, TRW Automotive Holdings Corp. 0% and ZF Friedrichshafen AG 0% of the Oakmark Select Fund’s total net assets. 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.
According to Morningstar, as of 12/31/2014 the Oakmark Select Fund’s (Class I) total-return percentile rank for the 2014 calendar year relative to all 1,568 funds in the U.S. Open End Large Blend Morningstar category was 6. The most favorable percentile rank is 1 and the least favorable percentile rank is 100. The top-performing fund in a category will always receive a rank of 1.
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.
