The Oakmark Global Select Fund had a strong quarter of absolute and relative performance, returning 23.1%. The benchmark MSCI World Index returned 19.4% for the same period. The Fund has returned an average of 6.4% per year since its inception in October 2006, outperforming the MSCI World Index, which has averaged 5.6% per year over the same period.

Alphabet (GOOG, GOOGL), the parent company of Google that is headquartered in the U.S., was the largest contributor for the quarter, returning 22.2%. The share price improved along with the broader U.S. equities market. The company also delivered reassuring first-quarter results in April as exhibited by a 13% increase in total revenue. Both the YouTube and cloud segments of the business grew 33% and 52%, respectively, and YouTube finished March at a high single-digit growth rate, despite the negative impact from the coronavirus. In addition, CFO Ruth Porat indicated the company is already seeing “very early signs of recovery” in search advertising. In our view, the return to more commercial behavior among users is a sign that things are moving in the right direction. Notably, Alphabet executed $8.5 billion in share repurchases in the first quarter compared to $3.0 billion for the first quarter in 2019 and the company indicated that it intends to maintain the increased pace of buybacks for the duration of the year.

Lloyds Banking Group (NYSE:LYG), a dominant retail bank in the U.K., was this quarter’s only detractor. Lloyds issued disappointing first-quarter results. Both its net income and underlying profit missed market expectations. Coupled with the earnings release, the CEO stated that the company’s original full-year guidance is no longer appropriate due to the uncertainty caused by the pandemic. To counter this, management is seeking to cut costs by redirecting resources and eliminating other expenses, such as travel. In addition, the U.K. government’s recent 100% guarantee on incremental small- and medium-enterprise loans should help to lower credit costs while also providing an attractive net interest margin. Although we believe that the company can overcome the difficulties it is facing, we have adjusted our valuation to reflect lower near-term expectations. Overall, we find that Lloyds is trading at a large discount to our estimate of the company’s intrinsic value and remains an attractive investment.

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During the quarter, we sold our investment in Apache (NASDAQ:APA) (U.S.) and purchased CBRE Group (NYSE:CBRE) (U.S.), one of the world’s largest commercial real estate service companies. Our research indicates that CBRE is one of the most highly regarded brands in the commercial real estate industry and possesses meaningful scale advantages, maintaining top market positions across most of its business units. About half of the company’s revenues are from stable and recurring fee-based businesses, such as property management, that, in our opinion, are growing rapidly. CBRE’s property management segment, combined with its brokerage business, differentiates its service offerings from some smaller brokerage competitors. The company’s market share is expanding in almost all business segments, particularly in leasing services, and as the overall commercial real estate market remains fragmented, we think CBRE will have ample opportunity to build market share.

Geographically, 45% of the Fund’s holdings were allocated to equities in Europe and the U.K., while approximately 49% were invested in U.S. companies and 5% in Asian equities.

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 13% of the Swiss franc exposure was hedged at quarter end.

We thank you for your continued support.

The securities mentioned above comprise the following preliminary percentages of the Oakmark Global Select Fund’s total net assets as of 06/30/20: Alphabet Cl A 10.4%, Apache 0%, CBRE Group Cl A 4.2% and Lloyds Banking Group 4.9%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.

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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 27, 2021.

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.

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 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.

The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change and may change based on market and other conditions and without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.

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Certain comments herein are based on current expectations and are considered “forward-looking statements”. These forward looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.

All information provided is as of 06/30/2020 unless otherwise specified.

Oakmark Global Select Fund – Investor Class
Average Annual Total Returns 06/30/20
Since Inception 10/02/06 6.35%
10-year 8.59%
5-year 2.70%
1-year -5.38%
3-month 23.08%

Gross Expense Ratio as of 09/30/19 was 1.25%
Net Expense Ratio as of 09/30/19 was 1.18%

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.

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