THE OAKMARK FUND
Report from Bill Nygren and Kevin Grant, Portfolio Managers
THE OAKMARK FUNDReport from Bill Nygren and Kevin Grant, Portfolio Managers |
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| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (12/31/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX1 | ||
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| 12/31/00 NAV9 $29.99 | Total Return Last 3 months* |
Average Annual Total Return10 Through 12/31/00 From Fund Inception 8/5/91 |
| The Oakmark Fund | 12.82% | 20.13% |
| Standard & Poor's 500 Stock Index w/inc | -7.82% | 16.41% |
| Dow Jones Industrial Average w/inc11 | -0.08% | 16.89% |
| Lipper Large Cap Value Fund Index12 | 0.36% | 15.08% |
| *Not annualized. | ||
The Oakmark Fund increased 12.82% for the quarter ended December 31. This makes three consecutive quarters that the Fund increased in value while the S&P 500 declined. The big story in the stock market continued to be the declining NASDAQ2. Since its March 10 peak, the NASDAQ declined 50.99% and The Oakmark Fund increased by 40.89%! Although the NASDAQ decline has created some buying opportunities in specific technology companies, we continue to believe that the technology sector is overvalued.
The financial media reporting on the NASDAQ decline in 2000 tended to induce fear — Biggest NASDAQ drop EVER! Instead, the market action in 2000 should generate confidence. The system works — when stock prices become disengaged from business reality, the natural forces of supply and demand drive stock prices back toward fair value. We always strive to have our portfolio invested so that we benefit from those forces.
The positive side of supply and demand pushing prices toward fair value is the increase in demand for undervalued stocks. Frequently, this increased demand comes from the corporate sector when companies offer large premiums in acquisitions. In the fourth quarter, we again had a large holding acquired, ACNielsen. On Friday December 15, ACNielsen stock closed at $24 5/8. On the morning of Monday December 18, VNU, a Dutch media company, offered to buy ACNielsen for $36.75 per share, a 50% premium to the market price. That Monday, ACNielsen was our largest holding, accounting for over 4% of the portfolio. The merger has not closed yet, but we sold our stock when the price rose above $36. Waiting for the deal to close hoping to earn the last 75c per share didn't seem like a risk worth taking. Thank you to CEO Nick Trivisonno and the ACNielsen board for realizing that selling the company maximized shareholder value.
Total
Returns |
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| 3 Months* | 12.82% |
| 6 Months* | 19.70% |
| 1 Year | 11.78% |
| *Not annualized Average
Annual Total Returns |
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| 3 Year | 1.26% |
| 5 Year | 9.84% |
| Since inception | 20.13% |
Portfolio Changes
Last year's highly volatile stock market, though viewed negatively by most, created many new opportunities for us. The divergence between a stock's price and its business value is what allows us to buy undervalued companies. Here's a brief explanation of the stocks that were added to our portfolio last quarter.
Gannett (GC—62)
Gannett stock price was over $80 a year ago. That price made sense to us. For this exceptional newspaper and broadcasting company, a price of 18 times next year's expected cash earnings seemed well justified. During the year however, GCI fell from over $80 to nearly $50, due largely to concerns about higher newsprint costs and a slowing economy. We believe these cyclical concerns do not affect GCI's intrinsic business value. With the stock now trading at just 13 times our estimates of this year's cash earnings, we are pleased to have the opportunity to own this fine company on our terms.
Liberty Media (LMG—12)
This company is a familiar name to long time readers. Through most of the nearly ten year life of The Oakmark Fund, we have held shares in Liberty Media. We sold our position a couple of years ago when we felt the stock price fully reflected underlying business value. Liberty continued rising after we sold and peaked in March at $31, as investors became excited about Internet opportunities for Liberty's wonderful cable TV programming assets. Liberty stock troughed at $11 last quarter, which is well below our estimate of business value. We have always admired Liberty management's singular focus on growing value. Their corporate mission statement is simply "To maximize the per-share-value of our stock over a 5-10 year horizon." We only wish all corporate managements understood that to be their job!
Highlights |
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Sara Lee (SLE—24)
Sara Lee is a diversified manufacturer and marketer of consumer packaged goods. Its well-known stable of brands includes Hanes, L'eggs, Coach, Douwe Egberts, Hillshire Farms and, of course, Sara Lee. The stock, which traded above $30 in 1998, was in the teens for most of this year, despite expectations of 2001 calendar cash EPS of over $1.65. We became interested in SLE last quarter when they named a new CEO, Steve McMillan. Although we admired ex-CEO John Bryan for building SLE in the 80's and early 90's, we were pleased to see the new CEO shift goals away from sales growth via acquisitions to a tighter focus on growth in per-share value.
Top Five
Industries |
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| Industries and % of Total Net Assets |
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Teradyne (TER—36)
Teradyne is a leading producer of test equipment for the semiconductor industry. In March, Teradyne stock peaked at $115; it troughed last quarter at $23! We find TER attractive not just because the stock fell 80%, but because the stock sells at 13 times estimated earnings. Although this industry goes through cycles, we expect continued strong long-term growth for semiconductors. That should allow Teradyne to continue compounding annual earnings at a high-teens growth rate.
Top Five
Holdings |
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| Company and % of Total Net Assets |
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Textron (TXT—47)
Textron is an industrial conglomerate with operations in the aerospace, automotive and finance industries. Textron has an enviable track record of compounding annual EPS13 growth at more than 10% for the last decade. Textron stock peaked at $98 in 1999 and hit a low of $41 last quarter. At the current price, TXT sells below 8 times expected cash earnings.
Thank you for your patience. The turnaround that began ten months ago helped make 2000 a good year for our Fund. We are well positioned to build on that success in 2001.
William C. Nygren, CFA
Portfolio Manager
bnygren@oakmark.com
Kevin G. Grant, CFA
Portfolio Manager
kgrant@oakmark.com
January 8, 2001
| THE OAKMARK FUND Schedule of Investments—December 31, 2000 (Unaudited) |
| Shares Held | Market Value | |
| Common Stocks—90.2% | ||
| Food & Beverage—3.3% | ||
| H.J. Heinz Company | 1,125,000 | $53,367,187 |
| Sara Lee Corporation | 807,400 | 19,831,763 |
| 73,198,950 | ||
| Apparel—2.2% | ||
| Jones Apparel Group, Inc. (a) | 1,327,000 | $42,712,813 |
| NIKE, Inc., Class B | 100,000 | 5,581,250 |
| 48,294,063 | ||
| Retail—9.9% | ||
| The Kroger Co. (a) | 1,975,000 | $53,448,437 |
| Toys 'R' Us, Inc. (a) | 3,000,000 | 50,062,500 |
| Tricon Global Restaurants, Inc. (a) | 1,400,000 | 46,200,000 |
| CVS Corporation | 630,000 | 37,760,625 |
| J.C. Penney Company, Inc. | 2,909,500 | 31,640,813 |
| 219,112,375 | ||
| Household Products—4.2% | ||
| Newell Rubbermaid Inc. | 1,700,000 | $38,675,000 |
| Energizer Holdings, Inc. (a) | 1,504,600 | 32,160,825 |
| The Dial Corporation | 2,052,900 | 22,581,900 |
| 93,417,725 | ||
| Household Appliances—1.7% | ||
| Maytag Corporation | 1,160,400 | $37,495,425 |
| Office Equipment—0.9% | ||
| Xerox Corporation | 4,325,000 | $20,003,125 |
| Hardware—4.4% | ||
| The Black & Decker Corporation | 1,522,200 | $59,746,350 |
| The Stanley Works | 1,224,900 | 38,201,569 |
| 97,947,919 | ||
| Other Consumer Goods & Services—12.7% | ||
| Mattel, Inc. | 5,594,400 | $80,783,136 |
| Fortune Brands, Inc. | 2,080,200 | 62,406,000 |
| H&R Block, Inc. | 1,275,300 | 52,765,537 |
| Cendant Corporation (a) | 3,900,100 | 37,538,463 |
| Galileo International, Inc. | 1,311,200 | 26,224,000 |
| Ralston Purina Group | 750,000 | 19,593,750 |
| 279,310,886 | ||
| Banks & Thrifts—4.6% | ||
| Washington Mutual, Inc. | 1,300,000 | $68,981,250 |
| Bank One Corporation | 900,548 | 32,982,570 |
| 101,963,820 | ||
| Insurance—1.5% | ||
| MGIC Investment Corporation | 475,000 | $32,032,813 |
| Information Services—4.4% | ||
| Moody's Corporation | 1,489,400 | $38,258,962 |
| Equifax Inc. | 1,220,500 | 35,013,094 |
| The Dun & Bradstreet Corporation (a) | 953,750 | 24,678,281 |
| 97,950,337 | ||
| Computer Services—6.2% | ||
| First Data Corporation | 1,040,000 | $54,795,000 |
| Electronic Data Systems Corporation | 890,000 | 51,397,500 |
| SunGard Data Systems Inc. (a) | 640,800 | 30,197,700 |
| 136,390,200 | ||
| Semiconductors—1.0% | ||
| Teradyne, Inc. (a) | 600,000 | $22,350,000 |
| Telecommunications—4.2% | ||
| AT&T Corp. | 3,500,000 | $60,593,750 |
| Citizens Communications Company (a) | 2,350,000 | 30,843,750 |
| 91,437,500 | ||
| TV Programming—1.7% | ||
| AT&T Corp. - Liberty Media Group, Class A (a) | 2,806,200 | $38,059,088 |
| Publishing—3.2% | ||
| Knight Ridder, Inc. (a) | 827,000 | $47,035,625 |
| Gannett Co., Inc. | 372,400 | 23,484,475 |
| 70,520,100 | ||
| Pharmaceuticals—1.0% | ||
| Chiron Corporation (a) | 474,000 | $21,093,000 |
| Medical Products—0.9% | ||
| Apogent Technologies Inc. (a) | 1,011,700 | $20,739,850 |
| Automobiles—2.3% | ||
| Ford Motor Company | 1,500,000 | $35,156,250 |
| DaimlerChrysler AG (b) | 400,000 | 16,480,000 |
| 51,636,250 | ||
| Aerospace & Defense—2.9% | ||
| Lockheed Martin Corporation | 1,000,000 | $33,950,000 |
| The B.F. Goodrich Company | 820,000 | 29,827,500 |
| 63,777,500 | ||
| Instruments—2.3% | ||
| Rockwell International Corporation | 1,067,300 | $50,830,162 |
| Machinery & Industrial Processing—4.3% | ||
| Cooper Industries, Inc. | 1,050,000 | $48,234,375 |
| Eaton Corporation | 602,900 | 45,330,544 |
| 93,564,919 | ||
| Building Materials & Construction—2.3% | ||
| Masco Corporation | 1,933,000 | $49,653,937 |
| Chemicals—0.2% | ||
| PolyOne Corporation | 697,500 | $4,097,813 |
| Utilities—2.2% | ||
| TXU Corp. | 1,080,000 | $47,857,500 |
| Diversified Conglomerates—2.0% | ||
| Textron, Inc. | 950,000 | $44,175,000 |
| Recreation & Entertainment—3.7% | ||
| Brunswick Corporation | 3,024,200 | $49,710,287 |
| Carnival Corporation | 1,050,000 | 32,353,125 |
| 82,063,412 | ||
| Total Common Stocks (Cost: $1,810,357,029) | 1,988,973,669 | |
| Par Value | Market Value | |
| Short Term Investments—9.2% | ||
| U.S. Government Bills—0.9% | ||
| United States Treasury Bills, 6.03% due 5/17/2001 | $20,000,000 | $19,544,400 |
| Total U.S. Government Bills (Cost: $19,544,400) | 19,544,400 | |
| Commercial Paper—5.9% | ||
| American Express Credit Corporation, 6.52% due 1/3/2001 | $10,000,000 | 10,000,000 |
| Ford Motor Credit Corp., 6.50%—6.59% | ||
| due 1/2/2001—1/5/2001 | 70,000,000 | 70,000,000 |
| General Electric Capital Corporation, 5.90% due 1/2/2001 | 50,000,000 | 50,000,000 |
| Total Commercial Paper (Cost: $130,000,000) | 130,000,000 | |
| Repurchase Agreements—2.4% | ||
| State Street Repurchase Agreement, 5.85% due 1/2/2001 | $53,438,000 | 53,438,000 |
| Total Repurchase Agreements (Cost: $53,438,000) | 53,438,000 | |
| Total Short Term Investments (Cost: $202,982,400) | 202,982,400 | |
| Total Investments (Cost $2,013,339,429)—99.4% | $2,191,956,069 | |
| Other Assets In Excess Of Other Liabilities—0.6% | 13,675,682 | |
| Total Net Assets—100% | $2,205,631,751 | |
| (a) | Non-income producing security. |
| (b) | Represents foreign domiciled corporation. |