Oakmark Fund: Second Calendar Quarter 2024
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
This quarterly report from Oakmark Fund covers Q2 2024. The fund lost about 4% while the S&P 500 gained over 4%, so it underperformed in the short term. But the manager argues that today's market is overly focused on expensive stocks (high price-to-earnings ratios), creating opportunities in cheaper stocks that are being ignored. They highlight a few holdings: Alphabet (Google) rose thanks to AI features and cost cuts; IQVIA (healthcare data) fell temporarily but has solid long-term prospects and trades at a discount to peers. New buys include Corebridge Financial (retirement insurance) and Nasdaq (transformed from an exchange into a software company)—both were mispriced by the market. Takeaway: don't chase only popular stocks; overlooked bargains can pay off.
The Oakmark Fund's second-quarter 2024 report shows a quarterly return of -3.98%, underperforming the S&P 500 Index's 4.28%, but since inception, it has achieved a cumulative return of 12.72%, still outperforming the S&P 500's 10.57%. The main contributors to the quarter were Alphabet Cl A and Goldm
Theme and Background
This chapter serves as the opening of Oakmark Fund’s second-quarter 2024 report, summarizing the fund’s quarterly performance, key contributors and detractors, as well as new purchases and sales. The report notes that the current spread between high P/E and low P/E stocks is unusually wide, creating attractive opportunities for cross-sector investment.
Core Thesis
The author’s core investment argument is that, despite the fund underperforming the broader market this quarter (-3.98% vs. the S&P 500’s 4.28%), its long-term cumulative returns remain significantly ahead (12.72% since inception vs. 10.57%). The author believes the current market mispricing of low P/E stocks presents buying opportunities for value investors. A counterintuitive observation is that the fund’s largest positive contributions came from the communication services and information technology sectors, while healthcare and energy were the biggest drags—contrary to the market’s generally bullish consensus on healthcare.
Key Arguments and Data
- Fund Performance Comparison: The fund returned -3.98% for the quarter, trailing the S&P 500’s 4.28%; however, since inception, the cumulative return stands at 12.72%, outperforming the S&P 500’s 10.57% and the Russell 1000 Value Index’s 9.81%.
- Alphabet (Largest Contributor): First-quarter operating income grew 31% year-over-year. Management’s cost-cutting measures are viewed favorably, and new AI features (showcased at Google I/O) are expected to enhance product value. The current stock price remains below the author’s estimate of intrinsic value.
- IQVIA Holdings (Largest Detractor): The stock declined after the first-quarter earnings release, but leading indicators for the clinical trials business are improving. Management expects gradual improvement in the technology and analytics solutions segment in the second half of the year, with a stronger rebound next year. The company trades at a valuation below that of other life sciences and data information service peers.
- New Purchase: Corebridge Financial: One of the largest retirement solutions and insurance providers in the U.S., with an extensive distribution network and long-term relationships with major financial institutions. The market treats it as a variable annuity company, but the author believes its earnings are more diversified and less risky. AIG’s stake reduction has removed a share price overhang. The purchase price was below that of non-variable annuity peers and the author’s intrinsic value estimate.
- New Purchase: Nasdaq: Has transformed from a traditional exchange into a software and data company, with the majority of revenue coming from non-exchange businesses. After the acquisition of Adenza, the stock pulled back, which the author believes has fully compensated for the acquisition risk and catalyzed management’s renewed focus on organic growth, debt repayment, and capital returns. Despite above-average growth potential, high recurring revenue, and operating margins, its P/E multiple is only in line with the broader market.
Companies/Assets Involved
Oakmark Fund QTD return -3.98%, since inception 12.72%, vs. S&P 500’s 4.28% and 10.57%
| Company | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Alphabet Cl A | Largest Contributor | Q1 operating income +31% YoY; new AI features; stock below intrinsic value | Bullish |
| Goldman Sachs | Contributor | No specific data provided | Bullish |
| Bank of America | Contributor | No specific data provided | Bullish |
| IQVIA Holdings | Largest Detractor | Stock fell after Q1; leading indicators for clinical trials improving; valuation below peers | Bullish |
| Centene | Detractor | No specific data provided | Bullish |
| CVS Health | Detractor | No specific data provided | Bullish |
| Corebridge Financial | New Purchase | Largest U.S. retirement solutions provider; AIG stake reduction; purchase price below non-variable annuity peers | Bullish |
| Nasdaq | New Purchase | Transitioned to software and data company; pullback after Adenza acquisition; P/E in line with market | Bullish |
| Danaher | Sold | No specific data provided | Bearish |
| KKR | Sold | No specific data provided | Bearish |
| Oracle | Sold | No specific data provided | Bearish |
Investment Insights
- Focus on Low P/E Stocks: The unusually wide spread between high and low P/E stocks offers value investors opportunities for cross-sector positioning, particularly in assets mispriced by the market as high-risk (e.g., Corebridge treated as a variable annuity company) but with more stable earnings.
- Emphasize Management’s Capital Allocation Discipline: The Nasdaq case shows that market skepticism about post-acquisition capital allocation can lead to excessive stock pullbacks, creating buying windows for long-term investors. Attention should be paid to whether management refocuses on organic growth and capital returns after an acquisition.
- Potential Mispricing in Healthcare: IQVIA Holdings was sold off due to short-term earnings volatility despite no deterioration in fundamentals (leading indicators for clinical trials improving) and trades at a discount to peers, potentially offering a contrarian buying opportunity.