Oakmark Fund: Fourth Calendar Quarter 2023
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.
In plain words
In 2023, growth stocks trounced value stocks, but the Oakmark Fund still beat the market by carefully picking cheap, solid companies. The manager says value opportunities today are as good as in early 2022, so long-term investors should be excited. For everyday investors, this means don’t abandon value investing just because it’s out of fashion—it can still deliver. Worth reading because it proves value investing works even in tough times and highlights stocks like Capital One and BlackRock as examples.
Oakmark Fund returned 12.92% in the fourth quarter of 2023, outperforming the S&P 500 Index's 11.69%; its full-year return was 30.89%, also surpassing the S&P 500's 26.29%. Although the value style underperformed the growth style for the full year (the Russell 1000 Growth Index led the Value Index b
Theme and Background
This chapter is the opening of Oakmark Fund's Q4 2023 report, reviewing the fund's performance in a market environment where value style continued to underperform growth style. The report notes that although the Russell 1000 Growth Index outperformed the Value Index by 31 percentage points in 2023, completely reversing the brief value style lead in 2022, the fund still achieved excess returns.
Core Thesis
The author's core judgment is: Current value investment opportunities are at least as compelling as those in early 2022, and long-term value investors should feel excited. This is a contrarian view against market consensus—despite value style significantly underperforming in 2023, the author believes opportunities are even greater. The report also emphasizes that over the 24 months when value style faced headwinds, the fund still outperformed the S&P 500 Index by 10 percentage points cumulatively, demonstrating the effectiveness of its stock selection strategy.
Key Arguments and Data
- Performance Comparison: The fund's Q4 2023 return was 12.92%, and full-year return was 30.89%, both outperforming the S&P 500 Index (Q4: 11.69%, full year: 26.29%).
- Style Headwinds: In 2023, the Russell 1000 Growth Index outperformed the Value Index by 31 percentage points, completely erasing the value style's lead from 2022.
- Long-Term Validation: Over the past 24 months, the fund outperformed the S&P 500 Index by 10 percentage points despite overall pressure on value style.
- Sector Contributions:
- Q4: Financials and Industrials contributed the most; Energy was a drag.
- Full Year: Financials and Communication Services contributed the most; Consumer Staples and Energy were drags.
- Stock Contributions:
- Q4 Top Contributors: Capital One Financial, KKR; Top Detractors: Charter Communications, APA Corp.
- Full Year Top Contributors: Meta Platforms, Alphabet; Top Detractors: APA Corp, Baxter.
Oakmark Fund Investor Class average annual total returns as of December 31, 2023: 1-year 30.89%, 3-month 12.92%, 5-year 16.89%, 10-year 11.33%, Since Inception 12.72%, Expense Ratio 0.89%
Companies/Assets Involved
| Company/Asset | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Capital One Financial | Q4 Top Contributor | 2.8% of fund net assets | Bullish (Held) |
| KKR | Q4 Top Contributor | 2.5% of fund net assets | Bullish (Held) |
| Meta Platforms | Full Year Top Contributor | 1.2% of fund net assets | Bullish (Held) |
| Alphabet | Full Year Top Contributor | 3.3% of fund net assets | Bullish (Held) |
| BlackRock | New Purchase | 1.2% of fund net assets | Bullish (New Position) |
| Charter Communications | Q4 Top Detractor | 1.8% of fund net assets | Bullish (Held) |
| APA Corp | Q4 and Full Year Top Detractor | 2.0% of fund net assets | Bullish (Held) |
| Baxter | Full Year Top Detractor | Percentage not disclosed | Bullish (Held) |
| Carlisle | Liquidated | 0% | Bearish (Sold, near intrinsic value) |
| Parker-Hannifin | Liquidated | 0% | Bearish (Sold, near intrinsic value) |
| Liquidated | 0% | Bearish (Sold, near intrinsic value) | |
| Pulte | Liquidated | 0% | Bearish (Sold, near intrinsic value) |
| Veralto | Liquidated (Danaher spin-off) | 0% | Bearish (Sold, price fully reflects value) |
As of December 31, 2023, preliminary portfolio holdings of Oakmark Fund include: Alphabet Cl A 3.3%, APA 2.0%, BlackRock 1.2%, Capital One Financial 2.8%, Charles Schwab 2.1%, KKR 2.5%, etc.
Investment Insights
- Value Style Opportunity Reemerges: The author believes current opportunities in value stocks are comparable to early 2022. Investors should focus on value stocks with reasonable valuations and strong fundamentals, rather than chasing growth stocks that have already risen significantly.
- Focus on Financials and Communication Services: These two sectors contributed the most over the full year, and the fund maintained its financials holdings in Q4 (only slightly reducing to offset passive weight increases from price appreciation), implying confidence in their sustainability.
- BlackRock as a New Highlight: The fund purchased this asset manager, which grows faster than the market, at a below-market P/E ratio, favoring its iShares ETF and active management business growth. It expects high single-digit revenue growth and even faster EPS growth. This provides investors with a "low valuation + high growth" stock selection example.
- Beware of Holdings Near Intrinsic Value: The fund liquidated Carlisle, Parker-Hannifin, Pinterest, Pulte, and Veralto, indicating that when a stock price approaches intrinsic value, it should be decisively sold even if fundamentals remain sound, rather than held long-term.