Oakmark Select Fund – Investor Class
Average Annual Total Returns 12/31/19
Since Inception 11/01/96 11.56%
Gross Expense Ratio as of 09/30/19 was 1.07%
Net Expense Ratio as of 09/30/19 was 1.00%
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.
What a difference a year can make! The Oakmark Select Fund returned 11.5% in the fourth quarter compared to the S&P 500’s 9.1% return. Unlike one year ago when fear ruled the day, the fourth quarter of 2019 was a welcome return to a market where business fundamentals mattered. For calendar year 2019, the Oakmark Select Fund increased 27.7% versus 31.5% for the S&P 500. While we still have to make up some ground due to a few years of below-market returns, we are encouraged by these much stronger results.
The largest contributors to performance during the quarter were Regeneron Pharmaceuticals, CBRE Group and Citigroup. After lagging the market considerably despite strong underlying fundamentals, Regeneron (REGN) management announced a large share repurchase authorization to take advantage of a growing gap between the market price and underlying value of REGN. We applaud management’s opportunism and, somewhat oddly, the same market that undervalued REGN seems to agree. The largest detractors were Ally Financial, American International Group and Qurate Retail. There was no identifiable news to explain the relative contribution or detraction from the other aforementioned holdings.
A year ago, we took advantage of the spike in market volatility and added four new names to the portfolio. The market environment of 2019 was quite different as was our activity. We didn’t add or remove any companies from the portfolio in the fourth quarter of 2019. We did, however, swap more than 70% of our non-voting Alphabet Class C shares for voting Class A shares as they were offered at a small discount to non-voting shares. We believe there should be a modest premium for the higher voting rights of the Class A shares and the swaps were done via like-kind exchange so there wasn’t a corresponding capital gain.
Speaking of taxes, despite a portfolio return of nearly 30% this year, we were able to offset all capital gains in 2019 with losses such that there was no capital gains distribution in 2019.
Thank you, our fellow shareholders, for you continued investment in the Oakmark Select Fund.
The securities mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 12/31/19: Ally Financial 6.5%, Alphabet Cl A 7.1%, Alphabet Cl C 2.8%, American Intl Group 4.1%, CBRE Group Cl A 9.0%, Citigroup 7.3%, Qurate Retail Cl A 1.5% and Regeneron Pharmaceuticals 4.8%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
The net expense ratio reflects a contractual advisory fee waiver agreement through January 27, 2020.
The S&P 500 Total Return Index is a float-adjusted, capitalization-weighted index of 500 U.S. large-capitalization stocks representing all major industries. It is a widely recognized index of broad, U.S. equity market performance. Returns reflect the reinvestment of dividends. 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.
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.
Harris Associates L.P. does not provide tax or legal advice. Please consult with a tax or legal professional prior to making any investment decisions.
All information provided is as of 12/31/2019 unless otherwise specified.