THE OAKMARK GLOBAL FUND
Report from Gregory L. Jackson and
Michael J. Welsh, Portfolio Managers
THE OAKMARK GLOBAL FUNDReport from Gregory L. Jackson and
|
|
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (9/30/01) AS COMPARED TO THE MSCI WORLD INDEX14 |
|||
|
|||
Average Annual Total Returns1 |
|||
(as of 9/30/01) |
|||
| Year to Date Total Return* (as of 9/30/01) |
1-year | Since Inception (8/4/99) |
|
| Oakmark Global Fund | -4.24% | 1.37% | 4.80%2 |
| MSCI World | -23.40% | -28.20% | -11.48% |
| Lipper Global Index15 | -23.18% | -27.35% | -6.84% |
| Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. | |||
| * Not annualized | |||
Fellow Shareholders,
The Oakmark Global Fund suffered from significant declines in world equity markets this quarter, declining by 17% for the three-month period ending September 30, 2001. This performance was roughly in line with the MSCI World and the Lipper Global Fund indices, which were down 14% and 15%, respectively.
For the twelve-month period ending September 30, 2001, which represents our fiscal year end, The Oakmark Global Fund returned 1% compared to large declines of 28% and 27% for the MSCI World Index and the Lipper Global Fund Index, respectively. This significant out-performance by your Fund during these times of turbulent markets is a reflection of our focus on downside protection in the portfolio as well as capital appreciation.
Opportunities
We believe that in times of extraordinary share price volatility the markets usually provide greater long-term opportunity. More volatility usually creates greater gaps between share prices and intrinsic business value. In taking advantage of these opportunities, we strive to upgrade the quality of the portfolio while maintaining the same expected return. We focus on businesses with higher profitability, and higher growth; in short, companies that in most circumstances would be too expensive to meet our investment criteria. Two top ten positions that illustrate this are Synopsys and Michael Page International (UK), both of which were added during the quarter.
Synopsys sells design automation solutions to the manufacturers of advanced semi-conductors. These software programs help chip companies design and test new chips. So far, Synopsys’ underlying business has been resilient to the downturn in the industry as chip companies usually cut back on R&D as a last resort. As indicated on several occasions we prefer to own "growth" stocks but only on our own terms: where the share price fails to accurately reflect the intrinsic value of the business.
Although there remains the possibility that the company will be temporarily impacted by the problems currently facing its customers, an important margin of safety lies in the company’s balance sheet. An accounting change has both masked the company’s true earnings power and allowed for the effective elimination of price discounting. We believe the market has misunderstood the true economic impact on the business, and as a result has caused the share price to dive. As reported earnings normalize over the next two years, most of this hidden value and the significant under-valuation of Synopsys will become visible.
In the UK we have added Michael Page International, one of the premier recruiting consultants in Europe. The company was spun-out in March of this year from the heavily indebted US holding company Spherion. Worries about a slowdown in the economy helped cause the stock to plunge, dropping from a high of 235p to 108p.
Last month in London we again met with both CEO Terry Benson and CFO Stephen Puckett and came away even more impressed by their business model and financial focus. Management’s record of organic growth and profitability are the envy of the industry. Further, top management’s compensation is very dependent on share price appreciation. It was also clear from our discussion that they are well prepared for a slow-down in their business, and have done a better job than their competitors in weathering downturns in the past.
One of the most successful aspects of their economic model is a profit-sharing scheme that keeps everyone focused on the bottom-line. Each consultant gets back 25% of his profit contribution as a bonus, so expenses feel as though they are "coming out of one’s own pocket". This profit focus has also prevented management from building a lot of fixed costs that would come back to bite them in a down recruitment market.
There is some cyclical risk to the short-term operating results and things have started to slow, though not dramatically. The company’s financial position looks strong, and there will be net cash on the balance sheet by the end of this year. Given substantial free cash flow generation and the current depressed share price, management would look at share buybacks to the extent they have excess capital.
Highlights |
|
Looking Forward
These two new investments hopefully give you insight into why we are so optimistic about our current positions and future prospects. When the market allows you to buy such quality businesses at large discounts to intrinsic value, we get excited about the long-term performance prospects of your Fund.
We thank you for your continued confidence in the newest fund in the Oakmark Family. We look forward to a long and prosperous future.
Gregory L. Jackson
Portfolio Manager
gjackson@oakmark.com
Michael J. Welsh, CFA, CPA
Portfolio Manager
102521.2142.compuserve.com
October 8, 2001
| THE OAKMARK GLOBAL FUND |
Global Diversification—September 30, 2001
| THE OAKMARK GLOBAL FUND |
Schedule of Investments—September 30, 2001
| Description | Shares Held | Market Value | |
| Common Stocks—89.9% | |||
| Food & Beverage—7.4% | |||
| Lotte Chilsung Beverage Co., Ltd. (Korea) |
Soft Drinks, Juices, & Sport Drinks Manufacturer | 6,700 | $1,325,613 |
Hite Brewery Co., Ltd. |
Brewer |
35,500 | 1,265,913 |
| Diageo plc (Great Britain) |
Beverages, Wines, & Spirits Manufacturer |
95,000 | 999,297 |
| 3,590,823 | |||
| Retail—6.1% | |||
| Somerfield plc (Great Britain) |
Food Retailer | 1,198,000 | $1,571,906 |
| ShopKo Stores, Inc. (United States), (a) |
Specialty Discount Retailer | 166,600 | 1,381,114 |
| 2,953,020 | |||
| Home Furnishings—3.1% | |||
| Hunter Douglas N.V. (Netherlands) |
Window Coverings Manufacturer | 68,000 | $1,485,201 |
| Other Consumer Goods & Services—0.7% | |||
| Royal Doulton plc (Great Britain), (a) |
Tableware & Giftware | 1,069,700 | $345,976 |
| Other Financial—2.4% | |||
| Ichiyoshi Securities Co., Ltd. (Japan) |
Stock Broker | 354,000 | $1,134,368 |
| Hotels & Motels—2.1% | |||
| Jarvis Hotels plc (Great Britain) |
Hotel Operator | 705,000 | $1,026,091 |
| Human Resources—4.8% | |||
| Michael Page International plc (Great Britain) | Recruitment Consultancy Services | 1,447,000 | $2,308,127 |
| Educational Services—9.0% | |||
| ITT Educational Services, Inc. (United States), (a) | Postsecondary Degree Programs | 85,000 | $2,720,000 |
| Learning Tree International, Inc. (United States), (a) | Computer Related Education | 80,000 | 1,624,000 |
| 4,344,000 | |||
| Marketing Services—2.8% | |||
| The Interpublic Group of Companies, Inc. (United States) |
Advertising & Marketing Services | 65,000 | $1,326,000 |
| Information Services—6.6% | |||
| Ceridian Corporation (United States), (a) | Data Management Services | 115,000 | $1,667,500 |
| Equifax Inc. (United States) | Consumer Credit Information | 70,000 | 1,533,000 |
| 3,200,500 | |||
| Computer Services—4.9% | |||
| Meitec Corporation (Japan) | Software Engineering Services | 55,100 | $1,432,849 |
| First Data Corporation (United States) | Electronic Commerce Services | 16,000 | 932,160 |
| 2,365,009 | |||
| Computer Software—14.4% | |||
| Novell, Inc. (United States), (a) | Network & Internet Integration Software | 700,000 | $2,562,000 |
| Synopsys, Inc. (United States), (a) | Electonic Design Automation | 60,000 | 2,406,594 |
| The Reynolds and Reynolds Company, Class A (United States) |
Information Management Systems | 85,000 | 1,980,500 |
| 6,949,094 | |||
| Computer Systems—3.1% | |||
| Lectra (France), (a) | Manufacturing Process Systems | 516,998 | $1,505,581 |
| Telecommunications—1.8% | |||
| SK Telecom Co., Ltd. (Korea) | Mobile Telecommunications | 5,400 | $861,350 |
| Broadcasting & Cable TV—4.1% | |||
| Grupo Televisa S.A. (Mexico), (a)(b) | Television Production & Broadcasting | 69,100 | $1,983,170 |
| Printing—4.3% | |||
| Valassis Communications, Inc. (United States), (a) | Product Promotions Printer | 65,000 | $2,074,150 |
| Medical Products—1.9% | |||
| Edwards Lifesciences Corporation (United States), (a) | Respiratory Products | 40,000 | $896,000 |
| Automobiles—3.5% | |||
| Ducati Motor Holding S.p.A. (Italy), (a) | Motorcycle Manufacturer | 1,375,500 | $1,689,894 |
| Chemicals—2.4% | |||
| Givaudan (Switzerland), (a) | Fragrance & Flavor Compound Manufacturer |
3,800 | $1,143,475 |
| Other Industrial Goods & Services—2.3% | |||
| Enodis plc (Great Britain) | Food Processing Equipment | 695,000 | $796,968 |
| GFI Industries SA (France) | Industrial Fastener Manufacturer | 20,325 | 297,798 |
| 1,094,766 | |||
| Diversified Conglomerates—2.2% | |||
| Pacific Dunlop Limited (Australia) | Diversified Manufacturer | 2,065,000 | $735,446 |
| Tae Young Corp. (Korea) | Heavy Construction | 16,900 | 335,667 |
| 1,071,113 | |||
| Total Common Stocks (Cost: $45,987,336) | 43,347,708 |
||
Par Value |
|||
| Short Term Investments—9.6% | |||
| Commercial Paper—6.2% | |||
| American Express Credit Corporation, 3.35% due 10/1/2001 | $1,500,000 | $1,500,000 | |
| General Electric Capital Corporation, 3.25% due 10/1/2001 | 1,500,000 | 1,500,000 | |
| Total Commercial Paper (Cost: $3,000,000) | 3,000,000 |
||
| Repurchase Agreements—3.4% | |||
| State Street Repurchase Agreement, 3.05% due 10/1/2001, repurchase price $1,638,416, collateralized by U.S. Treasury Bonds | $1,638,000 | $1,638,000 | |
| Total Repurchase Agreements (Cost: $1,638,000) | 1,638,000 |
||
| Total Short Term Investments (Cost: $4,638,000) | 4,638,000 |
||
| Total Investments (Cost $50,625,336)—99.5% (c) | 47,985,708 | ||
| Call Options Written—(0.1%) | |||
| Equity Options—(0.1%) | |||
| Educational Services—(0.1%) | |||
| ITT Educational Services, Inc., January 45 Calls (United States) |
Postsecondary Degree Programs | (25,000) | $(61,250) |
| Medical Products—0.0% | |||
| Edwards Lifesciences Corporation, November 30 Calls (United States) |
Respiratory Products | (20,000) | (8,000) |
| Total Equity Options (Premiums Received: $(141,020)) | (69,250) |
||
| Total Call Options Written (Premiums Received: $(141,020))— (0.1)% | (69,250) | ||
| Foreign Currencies (Proceeds $7)— (0.0)% | $7 | ||
| Other Assets In Excess Of Other Liabilities—0.6% (d) | 287,546 | ||
| Total Net Assets—100% | $48,204,011 |
||
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | At September 30, 2001, net unrealized depreciation of $2,567,858 for federal income tax purposes, consisted of gross unrealized appreciation of $4,014,151 and gross unrealized depreciation of $6,582,009. |
| (d) | Includes transaction hedges. |
See accompanying notes to financial statements.
