Oakmark Select Fund – Investor Class
Average Annual Total Returns 06/30/21
Since Inception 11/01/96 12.31%
10-year 11.93%
5-year 12.88%
1-year 66.92%
3-month 7.96%
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.
During the second quarter of 2021, the U.S. economy continued its reopening and, as a result, business fundamentals improved further. Not surprisingly, equity prices followed suit. The Oakmark Select Fund returned 8% in the quarter, just behind the S&P 500 Index’s 8.6% return. One year ago, when the recovery was beginning, we noted that the portfolio was well-positioned for a normalizing economy. Checking in one year later, the Fund returned 66.9% during that time, compared to 40.8% for the S&P 500.
The most significant contributors to this quarter’s performance were Alphabet (+18%), Capital One Financial (+22%) and Facebook (+18%). The performance of Alphabet and Facebook show that you don’t have to be an old-school value stock to be boosted by an improving economy. Both companies benefitted from the substantial growth in digital ad spending during the second quarter and they remain two of our most attractive opportunities, even after their recent strong performance.
The most significant detractors from our returns in the quarter were Booking Holdings (-6%), new holding Allison Transmission (-4%) and Lear (-3%). Their underperformance was not due to any significant or serious events as their minor price drops indicate.
Technically, we established one new position (Allison Transmission) and eliminated another (MGM Resorts International). We say technically because we restored Regeneron Pharmaceuticals from a rather trivial to a more normal position size. You may recall Regeneron performed well for the Fund during the Covid-19 crisis, so we significantly reduced our position as its price-value gap narrowed. During the past several quarters, however, the market has experienced the now infamous “reopening trade,” in which companies that performed well during the pandemic trailed as the economy reopened. Regeneron suffered a similar fate and its shares have lagged the S&P 500 by roughly 4000 basis points, despite the company’s strong fundamentals and robust pipeline of new products. The underperformance widened Regeneron’s price-value gap, so we restored it to a more normal position size.
Allison Transmission is a niche industrial company with roughly 80% market share in truck transmissions. Its products provide the company’s customers with critical advantages, including fuel economy, reduced emissions, reliability and total-cost-of ownership. The importance of Allison Transmission’s products and its dominant market position have historically given it strong pricing power. Yet, in the year leading up to our purchase, the company’s shares underperformed peers by more than 40 percentage points. Although we believe the company’s fundamentals are still as strong, if not better, than its peers, investors have worried about how commercial vehicle electrification will affect Allison Transmission’s long-term business. We believe that the company’s investments in next-generation products will enable it to maintain its position as an industry leader, even as technologies change. Furthermore, we believe that our investment carries limited downside risk because Allison Transmission’s shares sell at 10x free cash flow, which ascribes almost no value to the future. In addition, the company’s management team diligently returns capital to shareholders.
We sold MGM Resorts International as its share price reached our estimate of intrinsic value. The market has become quite enthusiastic about the potential for online gaming. While there are a wide range of outcomes for this nascent market, MGM was not as attractive to us as other companies in our portfolio, even after we assumed very rosy conditions, including a full return to normal activity in Las Vegas.
Thank you, our fellow shareholders, for you continued investment in the Fund.
The securities mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 06/30/21: Allison Transmission 2.6%, Alphabet Cl A 11.0%, Booking Holdings 3.5%, Capital One Financial 4.8%, Facebook Cl A 5.2%, Lear 3.9%, MGM Resorts International 0% and Regeneron Pharmaceuticals 3.3%. 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 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 06/30/2021 unless otherwise specified.
