Oakmark Select Fund - Investor Class
Average Annual Total Returns 09/30/16
Since Inception 11/01/96 12.43%
Gross Expense Ratio as of 09/30/15 was 0.95%
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 returned 8% for the quarter, ahead of the S&P 500’s 4% return. This brings the Fund’s return for the fiscal year ended September 30, 2016 to 12%, compared to 15% for the S&P 500.
During the quarter, our largest contributors to performance included Alphabet (+12%), Bank of America (+18%), MasterCard (+16%), and AIG (+13%). From a sector standpoint, our stock selection in Energy, as well as our selection and allocation to Financials, had the most positive impact. We also benefitted by what we didn’t own in the quarter. For some time now, we have had trouble finding value in the Consumer Staples, Utilities and Telecommunications sectors. In these sectors, we have found that share prices appear to be valued more closely to bonds, which we believe to be unattractive at current yields. Not owning these three sectors added over 1% to our performance relative to the S&P 500.
Our largest quarterly detractor was Liberty Interactive QVC (-21%). After a long period of rather stable but low single-digit growth, the company announced that sales fell by a mid-to-upper single digit amount in June, and these trends continued through July. The management team cited numerous company-specific reasons for the decline and is taking action accordingly. We continue to hold our position because we believe the company’s underlying value has only been modestly affected, relative to the decline in its share price. Only three other investments showed declines during the quarter: General Electric, Oracle and FNF Group.
For the fiscal year, our largest contributors were LinkedIn (+66%), Apache (+67%), and Alphabet (+28%). Our largest detractors were Liberty Interactive QVC (-24%), Citigroup (-4%), and CBRE Group (-13%).
Recall that earlier in 2016, we swapped most of our Chesapeake stock at approximately $4 per share for the company’s bonds at $48 per $100 par value, believing the bonds offered similar upside and less downside while capturing a tax loss. Last quarter we reported that the bonds had rallied to $85 per $100 par value, and the stock was trading at $4.28. Given the relative performance of the bonds to the stock and our comfort with the improved liquidity position of the company, we elected to swap back into the stock. Today our position in Chesapeake is exclusively in the form of equity.
We sold our remaining shares of LinkedIn and established a new position in casino operator MGM Resorts International (MGM). We believe the recovery potential in the Las Vegas market and MGM’s profit improvement plan are both underappreciated at the current value. Meanwhile, management has been busily working to close the price-value gap on the shares by monetizing latent real estate value and improving the balance sheet. In the short time we’ve owned MGM, both the fundamentals and management actions have been consistent with our thesis.
Thank you for your continued investment in the Fund.
The holdings mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 09/30/16: Alphabet, Inc., Class C 8.3%, Bank of America Corp 5.4%, MasterCard, Inc. Class A 5.2%, American International Group, Inc. 6.3%, Liberty Interactive Corp. QVC Group, Class A 3.4%, General Electric Co. 6.4%, Oracle Corp. 4.4%, FNF Group 4.8%, LinkedIn Corp. 0%, Apache Corp. 5.7%, Citigroup, Inc. 5.1%, CBRE Group, Inc., Class A 6.5%, Chesapeake Energy Corp. 4.1%, and MGM Resorts International 3.4%. 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.