Commentary

Oakmark Global Select Fund: Second Quarter 2015

June 30, 2015

The Oakmark Global Select Fund returned 1% for the quarter ended June 30, 2015, outperforming the MSCI World Index, which was flat for the quarter.   The Fund has returned an average of 8% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 5% over the same period.

The largest contributor to performance for the quarter was Amazon (U.S.), which returned 17%.  Investors reacted positively to Amazon’s first quarter results, which included new disclosures about the company’s cloud computing segment.  Investors had generally expected that high-growth segment, Amazon Web Services (AWS), to post a loss, but instead the company surprised the market by showing double-digit operating margins.  This positive surprise led many analysts and investors to assign a higher valuation to the AWS unit and to Amazon overall.  We are encouraged by the early success of the AWS business.  Amazon’s core retail and marketplace businesses also performed well in the quarter, generating strong top-line growth and solid gross margin expansion. Amazon’s continued heavy investments into the business, in our opinion, make gross margin a better metric than operating margin for assessing the company’s progress.  Overall, we were pleased with the results from Amazon’s major businesses this quarter and believe the company has years of growth ahead of it as it benefits from strong secular tailwinds.

Samsung Electronics, South Korea’s top electronics company and world leader in semiconductor manufacturing, was the quarter’s top detractor, declining 12%. Investors reacted negatively to news that initial sales of the new Galaxy S6 smartphone failed to meet consensus expectations.  Although we believe it is still too early to judge the success of the product, management’s targets for the Galaxy S6 are in line with our expectations.  It’s important to point out that while Samsung’s consumer electronics division (TVs and smart phones) is most visible to consumers, we don’t see it as the company’s main value driver. In our view, that driver is its semiconductors business in which Samsung is a principal leader and holds significant competitive advantages.  All three of the company’s semiconductor businesses (DRAM, NAND and System LSI) are going from strength to strength.  With its dominant position in semiconductors, strong balance sheet and low valuation, Samsung Electronics offers compelling long-term potential in our view.

We did not add or remove any names from the Fund during the quarter.  Geographically, 42% of the Fund’s holdings were invested in U.S.-domiciled companies as of quarter-end while approximately 48% were allocated to equities in Europe, 5% in Japan and 5% in South Korea.

Global currencies were relatively stable during the quarter, but we continue to believe some currencies are overvalued.  As a result, we defensively hedged a portion of the Fund’s currency exposure.  Approximately 27% of the Swiss franc exposure was hedged at quarter end.

We would like to thank our shareholders for continuing to support us and our value investing philosophy.

 

William C. Nygren, CFA
Portfolio Manager
oakwx@oakmark.com

David G. Herro, CFA
Portfolio Manager
oakwx@oakmark.com

 

 

Average Annual Total Returns (06/30/15)
Since Inception (10/06) 8.49%
5–year 14.82%
1–year 1.73%
Expense Ratio as of 9/30/14 was 1.13%

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.

As of 06/30/15, Amazon.com, Inc. represented 6.5%, and Samsung Electronics Co., Ltd. 4.5% of the Oakmark Global Select Fund's total net assets.  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 Global Select Fund as of the most recent quarter-end.

The MSCI World Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. This benchmark calculates reinvested dividends net of withholding taxes using Luxembourg tax rates. This index is unmanaged and investors cannot invest directly in this index.

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.

Oakmark Global Select Fund: The percentages of hedge exposure for each foreign currency are calculated by dividing the market value of all same-currency forward contracts by the market value of the underlying equity exposure to that currency.

Oakmark Global Select 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 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.

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Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.

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 call 1-800-OAKMARK (625-6275).

OAKMARK, OAKMARK FUNDS, OAKMARK INTERNATIONAL, and OAKMARK and tree design are trademarks owned or registered by Harris Associates L.P. in the U.S. and/or other countries.

Copyright 2017, Harris Associates Securities L.P., Distributor, Member FINRA.
Date of first use: January 24, 2013.

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