Oakmark International Fund: Fourth Quarter 2016
December 31, 2016
The Oakmark International Fund returned 6% for the quarter ended December 31, 2016, outperforming the MSCI World ex U.S. Index, which remained flat over the same period. The Fund’s calendar-year performance was strong in absolute and relative terms, returning 8% versus the MSCI World ex U.S. Index’s return of 3%. Most importantly, the Fund has returned an average of 10% per year since its inception in September 1992, outperforming the MSCI World ex U.S. Index, which has averaged 6% per year over the same period.
Glencore, one of the world’s largest mining companies and commodities traders, was the top contributor to performance for the quarter, returning 24%. Glencore’s share price reacted positively to the commodity price rebound, the company’s successful debt reduction plan and the election of Donald Trump as President of the United States. During the quarter, Glencore completed its sale of non-core assets, raising a total of $6.3 billion in proceeds from all asset disposals. In December, management announced plans to restart its dividend program and return at least $1 billion to shareholders in 2017. We believe management is working to enhance shareholder value, and our investment thesis remains intact.
Grupo Televisa, a media company and the world’s largest producer of Spanish-language content, was the largest detractor from performance for the quarter, declining 19%. The U.S. presidential election results prompted an immediate drop in the value of the peso and hurt Televisa’s share price. We expect advertising budgets will be under pressure in 2017 given the uncertain environment caused by the U.S. election while advertisers take a wait-and-see approach. Although we expect near-term volatility to continue, we believe Televisa’s fundamentals remain strong. Third-quarter results were in line with our expectations and company guidance. Specifically, the company’s cable segment and Sky satellite service performed well, growing 12% and 13%, respectively. We believe the company possesses a collection of great assets that the market continues to undervalue, and our investment thesis remains intact.
During the quarter we added three new names to the portfolio: BMW (Germany), Infosys (India) and Sanofi (France). Infosys is the second-largest IT service company based in India and is our first India-domiciled investment. The company primarily serves large corporations, providing a complete suite of IT-related services, including consulting, application development and maintenance, product engineering, and software-related products. Many Infosys clients are located outside of India, with North American companies contributing over 60% of revenues. We believe Infosys will benefit from the increasing complexity of technology and the trend toward outsourcing IT services.
Geographically, we ended the quarter with 76% of our holdings in Europe, 9% in Japan and 4% in Australia. The remaining positions are in the United States, China, Mexico, Indonesia, Hong Kong, South Korea, India, Taiwan and Israel.
Although the Swiss franc and Australian dollar weakened versus the U.S. dollar during the quarter, we continue to believe they are overvalued. As a result, we defensively hedged a portion of the Fund’s exposure. Approximately 25% of the Swiss franc and 10% of the Australian dollar were hedged at quarter-end.
We would like to thank our shareholders for continuing to support us and our value investing philosophy. We wish you all a very happy and prosperous new year!
David G. Herro, CFA
Michael L. Manelli, CFA
Oakmark International Fund – Investor Class
Average Annual Total Returns (12/31/16)
Since Inception (09/30/92) 9.66%
Expense Ratio as of 09/30/16 was 1.00%
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. The To obtain the most recent month-end performance data, view it here.
The securities mentioned above comprise the following percentages of the Oakmark International Fund’s total net assets as of 12/31/16: Glencore PLC 4.3 %, Grupo Televisa SAB ADR 1.8%, BMW 1.0%, Infosys Ltd ADR 0.6% and Sanofi SA 0.1%. 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 International Fund as of the most recent quarter-end.
The MSCI World ex U.S. Index (Net) is a free float-adjusted market capitalization index that is designed to measure international developed market equity performance, excluding the U.S. 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.
The Fund’s portfolio tends to be invested in a relatively small number of stocks. As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund’s volatility.
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 12/31/2016 unless otherwise specified.