Oakmark Select Fund – Investor Class
Average Annual Total Returns 09/30/17
Since Inception 11/01/96 12.89%
Gross Expense Ratio as of 09/30/16 was 0.98%
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 5.9% for the quarter, ahead of the S&P 500’s 4.5% return. This brings the Fund’s return for the fiscal year, ended September 30, 2017, to 22.6%, compared to 18.6% for the S&P 500. Please do not expect this level of absolute and relative performance every quarter or year, but we hope you enjoy them like we do as fellow investors in the Fund. We are also gratified to report the Fund ended the quarter at a new all-time high NAV, meaning that as of September 30, all current Select shareholders have unrealized gains in their holdings.
During the quarter, Fiat Chrysler (+69%) was by far the largest contributor to performance due to speculation that the company will be sold. Fiat Chrysler’s share price remains below our estimate of intrinsic value, and we have immense trust in CEO Sergio Marchionne to maximize per share value. So, we maintained our position during the quarter. Chesapeake Energy (-13%) was the largest detractor perhaps due to management having to shut in some production around Hurricane Harvey, but we view this as a relative non-event for business value.
We did not initiate or eliminate any positions in the quarter beyond equities (Anadarko) and put options (Weatherford and Chesapeake) used for tax trades, which produced a modest net positive return for the Fund. Although it is too early to give final numbers, we do anticipate making a capital gains distribution equivalent to a mid-single-digit percentage of NAV this year.
For the fiscal year, our largest contributors were Fiat Chrysler (+180%), Bank of America (+64%) and Citigroup (+56%). The largest detractors were Apache (-27%), Chesapeake Energy (-30%) and GE (-16%). Fiat Chrysler was already discussed, and the remainder of the contributing group reflects improving fundamentals from higher interest rates and more regulatory certainty. Apache, Chesapeake and—to a lesser extent—GE suffered from stubbornly low energy prices. There are also concerns about new management at GE resetting earnings expectations. We believe that GE is undervalued, even on rebased forward earnings, and that new CEO John Flannery is an improvement who will continue the years-long effort to refocus the company on maximizing per share.
Thank you for your continued investment in the Fund.
The securities mentioned above comprise the following percentages of the Oakmark Select Fund’s total net assets as of 09/30/17: Fiat Chrysler 7.5%, Chesapeake Energy 2.8%, Anadarko 0%, Weatherford 3.7%, Bank of America 4.0%, Citigroup 6.2%, Apache 4.1%, and General Electric 5.5%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
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.
All information provided is as of 09/30/2017 unless otherwise specified.