Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
This is Oakmark Fund's letter for early 2011. Oil prices jumped 17-24%, and energy stocks soared, but the fund deliberately owned very few of them because they believed high oil prices wouldn't last. As a result, the fund gained 5%, slightly behind the S&P 500's 6%. Still, some holdings did well: H&R Block (tax prep) rose 42%, Harley-Davidson 23%. The biggest losers were Cisco (-15%) and Best Buy (-16%), but the manager thinks both are still cheap. The key takeaway: professional investors sometimes avoid hot trends (like energy) and instead buy good companies that have temporarily fallen out of favor.
The Oakmark Fund rose 5% in the first quarter of 2011, slightly underperforming the S&P 500's 6% gain, primarily due to the strong performance of the energy sector (oil prices rose 17%-24%), while the fund had a low allocation to this sector, believing that high oil prices were unsustainable. Perfor
This section is the Oakmark Fund's first-quarter 2011 letter from the fund manager, primarily reviewing the fund's performance for the quarter, reasons for the gap relative to the benchmark, divergence in individual stock performance, and portfolio adjustments. The market backdrop featured a sharp rise in oil prices (17%-24%), with the energy sector performing strongly, while the fund had a low allocation to this sector.
The author's core investment argument is: Current high oil prices are unsustainable and do not reflect the long-term market-clearing price. Therefore, the fund deliberately underweights energy stocks and values them based on the assumption that oil prices will decline. This is a contrarian judgment against market consensus—when energy stocks surged due to soaring oil prices, the fund chose not to chase the rally.
| Company | Gain |
|---|---|
| H&R Block | +42% |
| Harley Davidson | +23% |
| Capital One | +22% |
| Cenovus | +19% |
| EnCana | +19% |
| Viacom | +18% |
| DirecTV | +17% |
| Company | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Cisco Systems | Largest Loser | -15%, 1.2% of portfolio | The author believes it remains attractive but needs to reassess long-term forecasts |
| Best Buy | Largest Loser | -16%, 1.5% of portfolio | Same as above |
| H&R Block | Top Gainer | +42%, 1.4% of portfolio | Bullish, as early tax filing results exceeded expectations and subprime loan losses were negligible |
| Harley Davidson | Top Gainer | +23%, 1.8% of portfolio | Bullish |
| Capital One | Top Gainer | +22%, 2.1% of portfolio | Bullish |
| Huntington Ingalls | Sold Immediately After Spin-off | 0% (fully liquidated) | Bearish, believing the valuation premium was excessive |
| Northrop Grumman | Added to | 1.9% of portfolio | Bullish |
| Unilever | Added to | 1.6% of portfolio | Bullish |
| Aflac | Added to | 1.5% of portfolio | Bullish |
| FedEx | Added to | 1.5% of portfolio | Bullish |