Commentary

Oakmark Select Fund: Fourth Quarter 2021

December 31, 2021

Oakmark Select Fund – Investor Class
Average Annual Total Returns 12/31/21
Since Inception 11/01/96 12.35%
10-year 13.39%
5-year 10.51%
1-year 34.04%
3-month 3.44%

Gross Expense Ratio: 1.03%
Net Expense Ratio: 1.01%

Expense ratios are based on estimated amounts for the current fiscal year; actual expenses may vary.

The net expense ratio reflects a contractual advisory fee waiver agreement through January 27, 2022.

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 was up 3.4% for the quarter, behind the S&P 500 Index’s return of 11.0%. Although this is a reasonable absolute return for an equity investor in any quarter, the relative shortfall put a slight damper on what was otherwise a strong absolute and relative 12 months for the Fund, ending December 31, 2021. The Select Fund returned 34.0% for the year, roughly five percentage points ahead of the S&P 500 Index return of 28.7%. As fellow shareholders in the Fund, we enjoy returns like these when they happen, but they are above what we expect on average, over time.

For a non-diversified fund like Oakmark Select, perhaps it goes without saying that the portfolio looks very different than the market, so our results can look quite different. It often takes years for the market to properly reflect a company’s value, so we hesitate to spend too much time delving into 90- or 365-day periods of time. Given the vastly different outcomes over the past quarter and year, however, we thought a brief summary of what happened might be helpful.

In the fourth quarter of 2021, the ballpark seven percentage point gap in relative performance was driven almost equally by our sector allocation and individual stock selection within those sectors. The market narrowed substantially in the fourth quarter, meaning a mere handful of stocks drove much of the performance of the S&P 500 Index. This fact contributed to both relative performance effects. While we owned one of those stocks, Alphabet, we did not own the others. The largest individual contributors to Fund performance in the quarter were CBRE Group (+11%) and Alphabet (+8%). The largest detractors were Citigroup (-13%) and Charter Communications (-10%).

As bottom-up value investors, calendar-year 2021 reflected more of what we like to see at Oakmark. Of the roughly five percentage points of outperformance, just over three-quarters came from individual stock selection while the remainder came from sector allocation. The largest individual contributors to Fund performance for calendar 2021 were Alphabet (+65%) and CBRE Group (+73%). Despite strong price performance, we believe that both companies remain attractive investments because of their low starting valuations and because they continue to surpass our fundamental expectations. The largest detractors for the year were Allison Transmission (-7%) and Charter Communications (-1%).

We initiated a new position in Fiserv during the fourth quarter. We purchased the company in the Oakmark Fund in the fourth quarter of 2020 and the reasons for purchase are unchanged from a year ago. The stock has languished over the last 12 months but the value has grown as fundamentals have been at least as good as we had expected. Given the widened discount to intrinsic value, we believed Fiserv belonged in a more concentrated portfolio, like Oakmark Select, as well. There were no deletions to the portfolio in the fourth quarter.

Thank you, our fellow shareholders, for your continued investment in the Fund.

The securities mentioned above comprise the following preliminary percentages of the Oakmark Select Fund’s total net assets as of 12/31/21: Allison Transmission 2.9%, Alphabet Cl A 9.9%, CBRE C@95 03/18/22 -0.5%, CBRE Group Cl A 8.4%, Charter Communications Cl A 4.5%, Citigroup 4.2% and Fiserv 4.7%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.

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 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 information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change and may change based on market and other conditions and without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.

Certain comments herein are based on current expectations and are considered “forward-looking statements”. These forward looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.

All information provided is as of 12/31/2021 unless otherwise specified.

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