Oakmark Global Select Fund: First Quarter 2018
March 31, 2018
The Oakmark Global Select Fund declined 3.3% for the quarter ended March 31, 2018, compared to the MSCI World Index, which declined 1.3%. However, the Fund has returned an average of 8.6% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 5.8% over the same period.
Mastercard, the second largest payment system in the U.S., was the top contributor for the quarter. We were pleased with the underlying trends exhibited in Mastercard’s fourth-quarter earnings report. A 13% increase in gross dollar volume translated to revenue growth of 15%, thanks to gains in switched transactions (+17%), cross-border growth (+17%) and acquisitions. For the full-year period, 10% gross dollar volume growth translated to 14% organic revenue growth and to 21% adjusted earnings per share growth. We believe that Mastercard can retain the benefits it gained from the recent U.S. tax reform. Management plans to invest a portion of the savings to boost revenue growth and will then return the remainder to shareholders, which will further enhance per share value growth. In our estimation, Mastercard is a great business with years of secular growth ahead that is trading at a discount to our perception of its underlying value.
WPP, a leading global advertising company, was the largest detractor for the quarter. Investors reacted negatively to the company’s fiscal 2017 results, reported in March. Account losses from 2016 had an abnormally high negative effect on growth in 2017. The company also announced weaker guidance for 2018. However, management indicated this is primarily due to the poor performance of legacy businesses rather than problems in the company’s digital or media divisions. Many developed-market multinational companies are cutting their advertising spending to control costs, which has in turn put pressure on global advertising agencies. WPP has admitted they were slow to recognize this trend and subsequently contain costs, but management will be more diligent to such changes going forward. WPP’s media and digital businesses are performing well and have good growth prospects, although the company is facing some short-term pressure. Despite the challenging short-term situation, our investment thesis for WPP is intact, and we used its recent share price weakness to increase our position.
Geographically, 48% of the Fund’s holdings were invested in U.S. companies as of March 31, while approximately 52% were allocated to equities in Europe and the U.K.
We continue to believe the Swiss franc is overvalued versus the U.S. dollar. As a result, we defensively hedged a portion of the Fund’s exposure. Approximately 20% of the Swiss franc exposure was hedged at quarter end.
We thank you, our shareholders, for your continued support and confidence.
William C. Nygren, CFA
David G. Herro, CFA
Anthony P. Coniaris, CFA
Eric Liu, CFA
Oakmark Global Select Fund - Investor Class
Average Annual Total Returns (03/31/18)
Since Inception (10/02/06) 8.60%
Gross Expense Ratio as of 09/30/17 was 1.19%
Net Expense Ratio as of 09/30/17 was 1.12%
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.
The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund’s total net assets as of 03/31/18: Mastercard Inc., Class A 5.1% and WPP PLC 5.1%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
Access the full list of holdings for the Oakmark Global Select Fund as of the most recent quarter-end.
The net expense ratio reflects a contractual advisory fee waiver agreement through January 28, 2019.
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. The index covers approximately 85% of the free float-adjusted market capitalization in each country. This benchmark calculates reinvested dividends net of withholding taxes. 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.
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.
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.
All information provided is as of 03/31/2018 unless otherwise specified.