Oakmark Global Select Fund: Third Quarter 2014
September 30, 2014
The Oakmark Global Select Fund returned 9% for the fiscal year ended September 30, 2014, underperforming the MSCI World Index, which returned 12%. For the quarter ended September 30, 2014, the Fund declined 4%, underperforming the MSCI World Index, which declined 2%.
Intel, the largest semiconductor manufacturer, was the top contributor for the fiscal year and the most recent quarter. The company’s market dominance in many fast-growing areas continues to benefit its long-term growth prospects. Earlier this year, we met with Intel’s CFO Stacy Smith, who is pleased with the company’s strong performance in areas of cloud, storage and high-performance computing. The company recently announced that it would expand the adoption of Intel-based chips in mobile devices in China. We believe this move provides direct access to a large new market and demonstrates new Intel CEO Brian Krzanich’s creative, pragmatic approach to maximizing the value of the company. Management continues to return capital to shareholders by lowering cash balances and increasing the pace of buybacks.
The largest detractor from performance for the quarter and the past twelve months was CNH Industrial, a manufacturer of agricultural and construction equipment. As expected, the company’s agricultural equipment business is experiencing reduced sales due to lower crop prices and farm profitability. However, we believe the agricultural segment to be a structurally appealing industry. Higher adoption of double cropping, increases in farm sizes in emerging and frontier markets, and the global need to increase yield will increase the demand for larger equipment. We believe CNH will continue to benefit from these trends as the second largest leader in this industry. In addition, the company’s commercial vehicles (Iveco) and construction equipment businesses have performed more poorly than expected. Weakness in Europe and Latin America, combined with adverse currency movements, have negatively impacted these businesses and led to very low levels of profitability. As these conditions return back to a more normal level, we believe these two segments will significantly improve. We believe management is taking important steps to enhance shareholder value with its continued focus on operational improvement and restructuring of the company’s balance sheet.
During the most recent quarter we sold our shares of Liberty Interactive and used the proceeds to purchase Amazon, the U.S.-based online retailer, which we believe is trading at a bigger discount to our estimate of intrinsic value. Based on our estimate of gross merchandise sold, Amazon is trading at a lower percentage of sales than its brick-and-mortar peers. We also purchased Richemont, the world’s second largest luxury goods firm, which owns brands such as Cartier and Montblanc.
Geographically, we ended the quarter with our European and Japanese holdings comprising 41% and 7% of the Fund, respectively. North America accounts for the remainder of the Fund’s equity holdings.
The U.S. dollar has strengthened significantly versus most global currencies. This is because of the U.S.’s strong relative economic growth outlook, directions in quantitative easing and geopolitical tensions in other parts of the world. As a result, the Swiss franc depreciated during the quarter. We continue to hedge the franc and ended the quarter with 24% of our Swiss franc exposure hedged.
We thank you, our shareholders, for your continued support and confidence.
William C. Nygren, CFA
David G. Herro, CFA
Average Annual Total Returns (09/30/14)
Since Inception (10/06) 8.58%
Expense Ratio as of 9/30/13 was 1.15%
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 09/30/14, Intel Corp. represented 5.5%, CNH Industrial N.V. 4.6%, Liberty Interactive Corp. 0%, Amazon, Inc. 4.5%, and Richemont SA 3.5% 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.