The top five holdings of this five-star rated global fund are: Alphabet Inc. (GOOG, 6.86% of assets), Daimler AG (DDAIF.DE, 5.57%), General Electric Company (GE, 5.29%), JP Morgan Chase & Co. (JPM, 5.19%), and American International Group (AIG, 5.11%)
Oakmark Global Select (OAKWX)
from Moneyletter
From its inception in October 2006 through the end of September 2015, Oakmark Global Select (OAKWX) had an average annual total return almost twice that of the MSCI World Index: 7.2% for the fund versus 3.7% for the index.
The favorable return comparisons go beyond the index. According to Morningstar, the fund has outperformed its peers over both the short- and long-term. It outpaces 97% of the world stock category for the trailing five years through October 30, and 88% of its peers for the year-to-date. Even looking at calendar year performance, it rarely falls below the 50th percentile.
Oakmark Global Select typically owns only about 20 stocks. But there is a great deal of diversity packed into the portfolio. The top holding constitutes less than 7% of assets. The top ten stocks account for 51.8% of assets, meaning the remaining eleven take up 48.2% of the portfolio. Additionally, the fund is not unusually heavy in any one sector (although, of course, it does have over- and underweights compared to the benchmark index and category).
Plus, there is significant geographic diversity. Traditionally, assets have been split fairly equally between domestic and foreign stocks, although in certain circumstances, the foreign portion can fall as low as 30% of assets. Recently, 41.4% of assets were invested in the US, 43.0% in Europe, and 9.1% in Asia (4.6% in Japan and 4.5% in the emerging market of South Korea). In Europe, the largest portion of assets are invested in Switzerland (21.5%), followed by France, the UK, and Germany.
Top contributors to performance recently included Amazon and Google. Managers Bill Nygren and David Herro “believe the company has years of growth ahead of it as it benefits from strong secular tailwinds.” The main detractor to performance was US-based oil and gas exploration and production firm Apache. The managers state, “The stock’s decline has significantly exceeded what we think is the true change in the company’s underlying business value,” concluding, “We believe most investors are ignoring the value of many Apache assets that will generate substantial cash flow when energy prices increase.”
Oakmark is well known as a value shop that takes a long-term approach to investing. That means a stock must be selling at a price “meaningfully” below Oakmark’s estimate of current business value and a company’s combination of dividend yield and per-share value growth must at least equal that expected for the S&P 500.
Management is key. “The most important thing we want to learn from CEOs is what their long term goals are and how they will measure their own success. We also want to hear their thoughts on capital allocation. Finally, we want to make sure that if the company has an opportunity to sell to a buyer who will pay full value for the company, management would happily sell the company.” Nygren concludes, “It is only when all three [criteria] are met that we can be confident holding the stock for a long time—for Oakmark, that usually means five to seven years.”
Nygren cites a high return on invested capital as a key measure. But, he explains, “You need to understand what enduring competitive advantage exists that will allow the company to continue earning high returns. Many of our investments are companies where we believe they will begin to demonstrate high returns, but for various reasons that ability is not yet obvious from current financial statements. If we can identify those opportunities before they are obvious it is more probable that we can get a price to our liking.”
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, November 2015