Today’s Daily Alert brings you two mutual fund recommendations from No-Load Fund Analyst.
“Oakmark I (OAKMX) and Oakmark Select I (OAKLX)—Year to date through May, the iShares Russell 1000 Value Index has gained 16.7%, whereas Oakmark Fund has gained 16.9% and Oakmark Select has gained 14.6%. While both funds have lagged the benchmark over the past 12 months (through April), the performance has been strong over the trailing five-year periods, with the latter helped by very strong 2009 returns following a multiyear period of disappointing relative results. Over the trailing 10 years, Oakmark Select lags the value benchmark by 74 basis points annualized, while Oakmark Fund has outperformed by 49 bps.
“Both funds have meaningfully outperformed during [Bill] Nygren’s full tenure as portfolio manager. In terms of consistency, Oakmark Fund has outperformed the benchmark in 59% of rolling five-year and 100% of rolling 10-year periods since Nygren started managing the fund. Over the same period Oakmark Select has outperformed the index in 59% of rolling five-year and 63% of rolling 10-year periods. ...
“Our experience with Nygren and the Oakmark team dates back to the mid-1990s. Since that time we have discussed many individual purchases and sales with Nygren, and he has consistently impressed us with his thorough stock analysis, intellectual honesty, and ability to objectively assess the risks and opportunities
across a wide range of market environments.
“He has made some costly mistakes in the funds, but we are encouraged by his meticulous focus on understanding what can be learned from those mistakes to prevent the investment team from repeating analytical errors and to improve his portfolio management. The recent decisions to sell Dell and BMC Software are good examples of what we perceive to be an incremental improvement in Nygren’s sell discipline and should bode well for a reduced likelihood of falling into ‘value traps.’
“We also like that Nygren is very tax-aware and manages the funds to maximize after-tax returns. [And] our opinion of the analyst team supporting Nygren remains high. ...
“We continue to recommend Oakmark Select and the Oakmark Fund. In our view, Nygren is a skilled analyst and a patient, risk-conscious portfolio manager, supported by a strong organization of like-minded investors at Harris Associates. Although it will not always be the case, it is our expectation that the more concentrated Oakmark Select will outperform over full market cycles due to Nygren’s ability to focus the portfolio in his highest-conviction names, typically no more than 20 stocks. In the short run, this concentration can produce elevated volatility, so investors who prefer a more diversified vehicle should consider the Oakmark Fund, which usually holds around 50 stocks. In both cases, we expect Nygren’s stock picking to produce returns in excess of the benchmark over longer time horizons, with relatively low turnover and above-average tax efficiency.”
Stephen Savage, No-Load Fund Analyst, www.nlfa.com, 800-776-9555, June 2013