Oakmark Fund: Second Quarter 2011

Theme and Background

This section presents the average annualized total return data for the Oakmark Fund (Investor Class) as of June 30, 2011, and discloses the fund's expense ratio. The report aims to demonstrate the fund's long-term performance since its inception in 1991, while providing investors with a comparative perspective on short-term versus long-term returns.

Core Thesis

The implicit core thesis of the report is that the Oakmark Fund's long-term historical return (12.52% since inception) is solid, but its recent one-year return (26.73%) is significantly higher than the long-term average and may be unsustainable. Investors should be wary of the volatility of short-term high returns and pay attention to the erosion of net returns by the expense ratio (1.11%).

Key Arguments and Data

• Long-Term Performance: Since its inception on August 5, 1991, the annualized return stands at 12.52%, indicating strong compounding ability over nearly two decades.
• Medium-Term Performance: The 10-year return is 4.73%, and the 5-year return is 5.16%, both below the long-term average, reflecting the drag on performance from market volatility in the late 2000s (e.g., the financial crisis).
• Short-Term Performance: The one-year return is as high as 26.73%, far exceeding the long-term average, likely benefiting from the market rebound in 2010-2011 or strong performance from specific holdings. The three-month return is only 1.45%, indicating a recent slowdown in growth.
• Expense Ratio: As of September 30, 2010, the Gross Expense Ratio is 1.11%, which is typical for actively managed funds but directly reduces investors' actual returns.

Companies/Assets Involved

• Oakmark Fund (Investor Class): The core fund analyzed in the report, with no specific holdings disclosed. The report does not explicitly take a bullish or bearish stance on the fund, but the data comparison implies that short-term high returns warrant cautious evaluation.

Investment Implications

• Short-Term High Returns Are Unsustainable: The one-year return of 26.73% deviates significantly from the long-term average. Investors should not view it as the norm and must be alert to the risk of mean reversion in future returns.
• Focus on the Impact of Fees on Long-Term Returns: An expense ratio of 1.11% can significantly erode returns over the long term through compounding. Investors should compare net returns with similar low-cost funds (e.g., index funds).
• Evaluate Across Multiple Time Horizons: Relying solely on short-term or long-term data can lead to misjudgment. It is recommended to assess the fund's risk-adjusted returns by combining performance across different periods, such as since inception, 10-year, and 5-year.