Oakmark Select Fund: Third Quarter 2015

September 30, 2015

For the quarter, the Oakmark Select Fund declined 9%, compared to a 6% decline for the S&P 500.  This brings the Fund’s return for the fiscal year that ended on September 30 to a decline of 7%, compared to a decline of 1% for the S&P 500 over the same period.  Although we are disappointed with these outcomes, we have been through difficult periods before and remain thoroughly committed to the same investment process that has delivered success since the Fund’s inception.

During the quarter, Apache (-32%) and Chesapeake (-32%) were our largest detractors, as commodity prices declined broadly.  Our largest contributors were Google Cl A (+19%) and Amazon (+18%).  For the fiscal year, Apache (-58%) and Chesapeake (-65%) were our largest detractors by a significant margin, and Amazon (+59%) and MasterCard (+23%) were our largest contributors.  We wrote fairly extensively about Chesapeake last quarter, but an update seems warranted given the stock price’s continued weakness.  In short, it wasn’t all bad news—lower oil and gas prices notwithstanding.  Chesapeake renegotiated a meaningful component of its legacy high-cost transportation contracts (see last quarter’s letter for details), and this has reduced the company’s sensitivity to lower gas prices.  Importantly, many of the company’s fundamentals, including production volume as well as drilling and operating costs, have been consistent with our expectations.  Furthermore, one of Chesapeake’s competitors recently sold assets in the Haynesville Shale that were quite similar to those of Chesapeake; the sale price was consistent with our estimated value.  At Oakmark, we always closely monitor private market transactions, which we believe are important indicators of business value. 

We sold Franklin Resources in the quarter and allocated the proceeds across several existing holdings in the Fund.  We established no new positions in the quarter.  You may notice the cash balance was higher than normal at quarter end.  The elevated cash position supports a tax trade on Apache, whereby we sold puts and a portion of our shares to maintain some exposure to the company while harvesting a tax loss.  We expect the cash position will normalize when we complete the tax trade.  While it’s too early to make promises, as of September 30, we do not expect to be making a capital gain distribution this year.

Thank you for your continued investment in the Fund.

William C. Nygren, CFA
Portfolio Manager

Anthony P. Coniaris, CFA
Portfolio Manager

Win Murray
Portfolio Manager



Average Annual Total Returns (09/30/15)
10-year 7.11%
5–year 13.64%
1–year -6.75%
Expense Ratio as of 9/30/14 was 0.95%

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 09/30/15, Apache Corp. represented 1.1%, Chesapeake Energy Corp. 3.4%, Monsanto Company, Inc. 3.1%, Google, Inc., Class A 0%, Google, Inc., Class C 7.5%,, Inc. 3.8%, MasterCard, Inc., Class A 5.0%, and Franklin Resources, Inc. 0% of the Oakmark 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 Select Fund as of the most recent quarter-end.

The S&P 500 Total Return Index is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market.  All returns reflect reinvested dividends and capital gains distributions.  This index is unmanaged and investors cannot invest directly in this index.

Because the Oakmark 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 Select Fund: The stocks of medium-sized companies tend to be more volatile than those of large companies and have underperformed the stocks of small and large companies during some periods.

The above information should not be considered tax advice. Please consult your tax advisor for detailed information applicable to your unique situation.

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.

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Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.

Before investing in any Oakmark Fund, you should carefully consider the Fund's investment objectives, risks, management fees and other expenses. This and other important information is contained in a Fund's prospectus and summary prospectus. Please read the prospectus and summary prospectus carefully before investing. For more information, please call 1-800-OAKMARK (625-6275).

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