Oakmark Select Fund – Investor Class
Average Annual Total Returns 12/31/16
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.
The Oakmark Select Fund increased 10% for the quarter, compared to 4% for the S&P 500 Index. For all of calendar 2016, the Fund increased 15%, compared to a 12% gain for the S&P 500 Index. We’re happy to highlight that the Fund hit a new all-time high adjusted NAV this quarter.
As you can see from those numbers, more than all of our 2016 outperformance came from the strong fourth calendar quarter. As always, we invest the Fund’s assets where we believe the market is presenting the most compellingly valued opportunities, and thus were 32% weighted in financials and 0% weighted in health care and consumer staples at the start of the fourth quarter. Although those weightings were responsible for some of the Fund’s relative underperformance throughout most of 2016, these sector weights proved hugely beneficial in the most recent quarter, producing over 450 basis points of relative performance versus the S&P 500 Index. Our top individual performers for the quarter, each up by at least 20%, were Fiat Chrysler (up 40%) and four financial companies (led by Bank of America, up 42%). Our biggest detractors, FNF Group and Intel, were each only down single-digit percentages.
For calendar 2016, our top performers were Chesapeake Energy (stock and bonds) and LinkedIn. While LinkedIn was bought out soon after our initial purchase, we still own Chesapeake and believe that it remains a very attractive investment, despite its strong performance in 2016. Our largest detractors in the calendar year were Liberty Interactive QVC and CBRE Group. We believe both stocks remain undervalued, and we still own stakes in both companies.
We continue to believe that financial stocks are quite undervalued as well. During the quarter we made a new investment in Ally Financial. Ally was founded nearly a century ago as General Motors Acceptance Corporation. Its purpose then was to provide financing to GM dealers and retail customers. Today, Ally is no longer owned by GM. It serves a wide variety of dealers (including Ford, Chrysler and Toyota), and it is carefully building a consumer franchise. In our view, investors are myopically concerned that the auto business is at a cyclical peak. U.S. auto sales are near record levels, and credit losses are below long-term averages. Some believe Ally’s earnings have nowhere to go but down. We believe cyclical pressures will be more than offset by continued internal improvements, such as funding cost reductions (low-cost online deposits grew 19% in the third quarter of 2016) and improving the capital structure. With Ally’s stock trading at roughly 68% of tangible book value, we believe Ally is a compelling addition to the Oakmark Select Fund. We didn’t eliminate any positions during the quarter and exit 2016 with 20 investments in the portfolio.
Thank you, our fellow shareholders, for your continued investment in our Fund. Best wishes for a happy and prosperous 2017.
The securities mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 12/31/16: Fiat Chrysler Automobiles N.V. 4.3%, Bank of America Corp 5.3%, FNF Group 4.0%, Intel Corp. 2.8%, Chesapeake Energy Corp. 4.2%, LinkedIn Corp. 0%, Liberty Interactive Corp. QVC Group, Class A 3.1%, CBRE Group, Inc., Class A 6.6%, Ally Financial, Inc. 3.4%, General Motors Co. 0%, Ford Motor Company 0% and Toyota Motor Corp. 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 12/31/2016 unless otherwise specified.