Commentary

Oakmark Select Fund: Fourth Quarter 2015

December 31, 2015

Oakmark Select Fund - Investor Class
Average Annual Total Returns 12/31/15
Since Inception 11/01/96 12.68%
10-year 7.34%
5-year 13.56%
1-year -3.58%
3-month 6.90%

Gross Expense Ratio as of 09/30/15 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 returned 7% for the quarter which matched the S&P 500 Index’s return.  For all of calendar 2015, the Oakmark Select Fund declined by 4%, compared to a 1% gain for the S&P 500 Index.

Our top performers in the quarter, each up by at least 24%, were Alphabet (formerly known as Google), General Electric (GE), and Amazon.  Alphabet and GE ended the quarter as the two largest positions in the Fund, and we believe both investments remain substantively undervalued, possess strong fundamentals, and are run by excellent management teams.  We’ve always believed that Alphabet’s highly valuable search business makes more money than investors give it credit for, and the company’s new reporting structure should better highlight this profit stream.  General Electric, meanwhile, is completing its portfolio transformation by selling off finance assets, acquiring what we believe is a quality industrial asset at a great price (Alstom), and buying back stock with proceeds from its Synchrony share exchange.  We expect the newly refocused GE to have significant margin expansion potential over the next few years.

We eliminated our Amazon stake during the quarter, as the stock’s rapid climb in 2015 brought the shares up to our estimate of intrinsic value.  While our holding period for Amazon (first purchased in the Fund in the second quarter of 2014) was much shorter than is typical for us, we’ve always said that turnover is simply a byproduct of the length of time required for price to converge with value. We’ll happily show high turnover when it is the result of rapid stock price appreciation.  We reinvested the Amazon proceeds across existing holdings, ending the quarter with investments in 19 companies; the Fund generally holds about 20 positions.

Our worst quarterly performer by far was Chesapeake Energy, down 39%, while only two other positions declined—FNF Group down 2% and Calpine down 1%.  In our opinion, commodity prices have fallen to levels which, if permanent, would bankrupt much of the exploration and production sector of the oil and gas industry.  However, we believe commodity prices will rise and that many investments made today in this industry will prove quite rewarding.  That said, given Chesapeake’s financial obligations, it is without question a much riskier investment than we normally hold.  Securities across Chesapeake’s capital structure have all declined sharply and, in our opinion, are now all attractively priced.  We’ve shifted some of our position from common stock to somewhat less risky preferred stock, which we believe reduces risk without forfeiting upside potential.

While the Fund’s full-year performance wasn’t as strong as we would’ve liked, it’s worth noting that our pre-tax and after-tax returns were very similar, despite realizing large gains throughout the year in investments such as FedEx, Medtronic, and Amazon.  We actively monetized losses, where appropriate, so that we could eliminate the need for capital gains distributions this year.

Thank you, our fellow shareholders, for your continued investment in our Fund.  Best wishes for a happy and prosperous 2016.

The holdings mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 12/31/15:  Alphabet Inc. 8.0%, General Electric Co. 7.7%, Amazon.com, Inc. 0%, Alstom SA 0%, Synchrony Financial 0%, Chesapeake Energy Corp. 2.2%, FNF Group 4.7%, Calpine Corp. 3.2%, FedEx Corp. 0%, and Medtronic PLC 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 above information should not be considered tax advice. Please consult your tax advisor for detailed information applicable to your unique situation.

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.


Bill Nygren- Portfolio Manager- Headshot
William C. Nygren, CFA

Portfolio Manager

Tony Coniaris- Portfolio Manager- Headshot
Tony Coniaris, CFA

Portfolio Manager

Win Murray- Portfolio Manager- Headshot
Win Murray

Portfolio Manager