Oakmark Select Fund – Investor Class
Average Annual Total Returns 06/30/20
Since Inception 11/01/96 10.44%
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.
The second quarter of 2020 was an almost mirror image of the first. The world’s efforts to curb the spread of the coronavirus began to have an impact and the significant U.S. fiscal stimulus, announced in late March, provided much-needed support to consumers, businesses, and the credit markets. The Oakmark Select Fund returned 23% in the second quarter versus a 21% return for the S&P 500 Index. While we are gratified by this result, we understand that we have significant ground to make up with the Fund down approximately 17% YTD (in line with the Russell 1000 Value Index, also down nearly 17%) versus the S&P 500, which is down only 3%. However, we believe we are well positioned for a global economy that is now beginning to normalize.
The most significant contributors to performance were Alphabet (+22%), Ally Financial (+39%), Apache (+223%), and Facebook (+36%). We added Facebook to the Fund in the first quarter, and seeing it near the top of our contributors’ list is a good illustration of the unusually attractive opportunities available during that volatile period. The most significant detractors during the most recent quarter were General Electric (-14%), Concho Resources (+10% – sold), Mastercard (+7% – sold), and Hilton Worldwide (+8%)
As volatility decreased in the quarter, so did our trading activity. We did not establish any new positions and finished selling off two holdings—Concho Resources, which we discussed in last quarter’s letter, and Mastercard. Mastercard has been a terrific holding for nearly a decade, but its price reached a point where we could no longer justify holding it in a concentrated portfolio like Oakmark Select. Selling Mastercard at more than 10x your original cost base is a great reminder of the benefit of a nearly perfect trifecta for investing: an exceptional business, purchased at a great price, and run by exemplary people.
You also may have noticed the option activity in Netflix and Regeneron Pharmaceuticals. Stock prices for both companies have been much more volatile than our estimates of business value. This presented us the opportunity to sell calls that we believe are overvalued, rather than partially selling our position, when we wanted to reduce our portfolio weights. Further, selling calls allows us to defer realizing the large capital gains that would be incurred if we sold shares outright, given the dramatic outperformance of those companies year-to-date.
Thank you for your continued partnership.
The securities mentioned above comprise the following preliminary percentages of the Oakmark Select Fund’s total net assets as of 06/30/20: Ally Financial 5.4%, Alphabet Cl A 10.4%, Apache 1.2%, Concho Resources 0%, Facebook Cl A 5.5%, General Electric 3.0%, Mastercard 0%, Netflix 6.1% and Regeneron Pharmaceuticals 5.3%. 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 net expense ratio reflects a contractual advisory fee waiver agreement through January 27, 2021.
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.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. 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 06/30/2020 unless otherwise specified.