Oakmark Fund: Third Quarter 2020

Theme and Background

This section focuses on the long-term and short-term performance of the Oakmark Fund (Investor Class) as of September 30, 2020, and discloses its fee structure. The report aims to present the fund's historical return record since its inception in 1991, while also explaining the current expense levels and the impact of an upcoming fee waiver agreement on the net expense ratio.

Core Argument

The author's core argument is that the Oakmark Fund has achieved solid annualized returns over the long term (since inception, 10-year, and 5-year periods), but its short-term (1-year) performance has significantly lagged, reflecting the impact of market volatility on the fund's results. In terms of fees, the net expense ratio is lower than the gross expense ratio, thanks to a contractual waiver arrangement, but this arrangement is set to expire in January 2021, potentially leading to higher fees in the future.

Key Arguments and Data

• Strong Long-Term Performance: Since its inception on August 5, 1991, the annualized total return has been 11.77%; the 10-year return is 10.97%; and the 5-year return is 8.61%. These figures indicate that the fund has delivered substantial returns across multiple market cycles.
• Weak Short-Term Performance: The 1-year return is only 1.18%, far below the long-term average, suggesting that recent market conditions (e.g., the 2020 pandemic shock) have pressured the fund's holdings. However, the 3-month return rebounded to 6.18%, indicating signs of short-term recovery.
• Fee Structure: The gross expense ratio is 0.92%, and the net expense ratio is 0.88%, with the 0.04% difference stemming from a contractual advisory fee waiver agreement that runs until January 27, 2021. This means that if the agreement is not renewed upon expiration, the net expense ratio will revert to 0.92%.

Companies/Assets Involved

• Oakmark Fund (Investor Class): The core fund analyzed in the report. The author does not explicitly take a bullish or bearish stance but implies through the data that its long-term value investing strategy is effective, while short-term volatility warrants caution. The expiration of the fee waiver agreement is a potential risk point.

Investment Implications

• Long-Term Holders Should Monitor Fee Changes: The net expense ratio of 0.88% is competitive among actively managed funds, but the fee could rise to 0.92% after the waiver expires in January 2021. Investors need to assess whether this cost increase will affect long-term returns.
• Short-Term Performance Warns of Timing Risk: The 1-year return of only 1.18% indicates that the fund may underperform indices or peers in extreme market environments (e.g., 2020). Investors should confirm their risk tolerance to avoid redemptions driven by short-term volatility.
• Past Performance Does Not Guarantee Future Results: The 11.77% return since inception is impressive, but the declining trend from the 10-year (10.97%) to the 5-year (8.61%) suggests that future returns may revert to the mean. Further analysis combining current holdings and the fund manager's strategy is recommended.