Staying The Course by Oakmark Funds

H/T Dataroma

“During the lazy days of summer, one may contemplate investing from the perspective of a regatta.  Although the less disciplined change their tack in hopes of coaxing along a success, we at Harris Associates continue to look to the horizon and stay the course, even when the winds shift or the gusts blow.” – David Herro, 2013

The recent tumble in the markets has caused volatility in stock prices and uncertainty among many investors. But as we have noted before, our intrinsic value of a stock often does not move as fast—or even in the same direction—as market prices. In fact, we view market instability favorably: “In this current environment, as share prices have aggressively fallen, we believe it is a great opportunity for long-term investors to buy quality businesses at lower prices,” says David Herro, the firm’s Deputy Chairman and Chief Investment Officer of International Equities.

By taking a long-term view on our investments, we are able to look past noise in the markets and pay attention to the underlying fundamentals of stocks instead. We focus on determining a stock’s intrinsic value, which standard financial theory states is a function of the cash flow a business generates—current and future—discounted to the present. For example, when Daimler’s share price was recently down 4% on the day after Greece talks broke down, we didn’t believe Daimler’s stock would be 4% less valuable if Greece were to depart from the eurozone or default on its debt. Instead, we remained confident in our long-term investment thesis for the company.

This recent volatility has provided us with several new buying opportunities. In the U.S., we are finding value within the financials and industrials sectors. Abroad, we are interested in companies in Europe and Japan. In all of these areas, there is a common thread: we are discovering companies that we believe are high quality and managed intelligently, but their stock prices have been hit for reasons unrelated to their intrinsic value.

In an interview with Morningstar this week, portfolio manager Bill Nygren shared some advice for investors who are fearful of the current markets. He reminded investors that market corrections have occurred over long periods of history, and they will continue to occur. By accepting this fact and continually rebalancing one’s portfolio, investors can learn to embrace these volatile periods and view them as an opportunity, much like we do at Harris Associates. Though we cannot control price movement, we can apply the principles of disciplined value investing with the goal of growing our shareholders’ capital over time.

As of June 30, 2015, Daimler represented 2.4% of Oakmark Global; 4.8% of Oakmark Global Select; and, 3.0% of Oakmark International Fund’s portfolio of net assets.

Oakmark Global Fund and Oakmark International Fund:  The Fund’s portfolio tends to be invested in a relatively small number of stocks. As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund’s volatility.

Because the Oakmark Global 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.

Investing in foreign securities presents risks that in some ways may be greater than U.S. investments. Those risks include: currency fluctuation; different regulation, accounting standards, trading practices and levels of available information; generally higher transaction costs; and political risks.

The discussion of the Funds’ investments and investment strategy (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) represents the Funds’ investments and the views of the portfolio managers and Harris Associates L.P., the Funds’ investment adviser, as of the date written and are subject to change without notice.

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.

The Oakmark Funds are distributed by Harris Associates Securities L.P. Member FINRA. Before investing in any Oakmark Fund, you should carefully consider the Fund’s investment objectives, risks, management fees and other expenses. This and other important information is contained in a Fund’s prospectus and summary prospectus. Please read the prospectus and summary prospectus carefully before investing. For more information, please visit oakmark.com or call 1-800-OAKMARK (625-6275).

Copyright©2015 Harris Associates Securities L.P., Member FINRA.

Market Volatility