The Oakmark Select Fund increased in value by 20% in the quarter, putting our fiscal year into the black by 13%. Both numbers compare favorably to the S&P 500, which gained 16% for the quarter but was still down 7% for the year. Our fiscal year performance benefited greatly from purchases made during the panics this past fall and winter. Portfolio newcomers Liberty Entertainment and Newfield Exploration more than doubled after they were purchased. We bought Newfield after energy prices fell below our estimate of long-term market clearing prices, and after investors became concerned about Newfield’s debt levels. Our careful examination of Newfield’s extensive hedges made us confident that their leverage was not a significant risk. We purchased Liberty Entertainment when it traded at a large discount to the market value of its equity investment in DirecTV. Later in the year, after DirecTV |
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Average Annual Total Returns (9/30/09)
10-year 6.89%
5–year -0.04%
1–year 13.30%
Expense Ratio as of 9/30/08 was 1.08%
The performance data quoted represents past performance. The above performance information for the Fund does not reflect the imposition of a 2% redemption fee on shares redeemed within 90 days. If reflected, the fee would reduce the performance quoted. Past performance does not guarantee future results. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain most recent month-end performance data, view it here.
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announced its intention to merge with Liberty Entertainment, that discount disappeared. Other top performers for the year were: e-Bay, which was another portfolio newcomer; Schering-Plough, which agreed to be acquired by Merck; and Discovery Communications, which outperformed peers in a difficult advertising environment.
At the other end of the spectrum, we suffered losses in Comcast and Limited Brands, which were sold in the midst of the decline to make room for more attractively priced stocks. This increased the valuation discount of our portfolio, and also allowed us to capture significant tax losses. The stock that most hurt our fiscal year return was Capital One — it didn’t go down the most, but the combination of its loss and our portfolio weighting created the biggest impact. However, we kept Capital One in the portfolio because we believed that these historically unprecedented defaults were a cyclical issue, and we projected that Capital One would be relatively inexpensive once losses normalized.
The decision to keep Capital One helped our results in the most recent quarter, as the stock rebounded 64%, making it one of our best performers. Perhaps the biggest contributor to the quarter was not the increase in any single stock, but rather the absence of any losers. Our worst performing stock, which was one of the previous year’s bright spots, was YUM Brands, which gained 2%. We had no additions or deletions to the portfolio during the quarter because we have continued confidence that our existing holdings represent good value.
William C. Nygren, CFA
Portfolio Manager
oaklx@oakmark.com
Henry R. Berghoef, CFA
Portfolio Manager
oaklx@oakmark.com
As of 9/30/09, Liberty Media Corp. - Entertainment represented 7.4% of The Oakmark Select Fund's total net assets, Newfield Exploration Company 3.9%, eBay, Inc. 4.0%, Schering-Plough Corp. 4.7%, Merck & Co., Inc. 0%, Discovery Communications Inc. Class C 10.3%, Comcast Corp. 0%, Limited Brands 0%, Capital One Financial Corp. 3.8%, and Yum! Brands, Inc. 3.3%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
The S&P 500 Index is a broad market-weighted average of U.S. blue-chip companies. This index is unmanaged and investors cannot actually make investments in this index.
Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.
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.
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, at the time of this letter, and are subject to change without notice.
