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 report explains how Oakmark Fund performed in the third quarter of 2024. It beat the S&P 500, returning 7.38% vs. 5.89%. The fund looks for stocks that are undervalued because of short-term fears. For example, Charles Schwab (a brokerage) was hurt by regulation and lower interest income, but Oakmark thinks its deposit base will stabilize and its long-term advantages still matter. Merck (a drugmaker) faces a patent expiration for its top drug Keytruda in 2028, but Oakmark says the cash flow from current products already covers the stock price, so the pipeline of new drugs is almost free. Genuine Parts (a car and industrial parts distributor) has a huge network of stores that's hard to copy, and its stock is cheap relative to profits. The fund sold American Express and Moody's because they reached fair value. The key lesson: when expensive and cheap stocks diverge a lot, look for companies whose cash flows justify the price even if bad news is scaring others.
Oakmark Fund returned 7.38% in the third quarter of 2024, outperforming the S&P 500 Index's 5.89%, and has achieved a cumulative return of 12.86% since inception, surpassing the index's 10.67%. Core view: Against the backdrop of an unusually wide spread between high-PE and low-PE stocks, the fund co
This chapter is the Oakmark Fund's investment review for the third quarter of 2024, focusing on the fund's performance during the quarter, key contributors and detractors, and the latest portfolio adjustments. The market backdrop is characterized by an unusually wide valuation gap between high-PE and low-PE stocks, which the report argues creates broad opportunities for value investing.
The author's core investment argument is that in an environment of extreme valuation dispersion, the fund can consistently outperform the broader market by selecting undervalued stocks across various industries. Counterintuitive judgments include: regulatory pressure on Charles Schwab is overpriced by the market, as the report believes its deposit decline will stabilize and long-term scale advantages will still create value; concerns over Merck's Keytruda patent expiration are exaggerated, as the report argues that cash flows from existing products already cover the current stock price, and the pipeline value is nearly ignored by the market.
| Company | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| CBRE Group | Top contributor | Q2 revenue, EPS, FCF exceeded expectations | Bullish: Strong management, clear growth path |
| Charles Schwab | Largest detractor | Net interest income declined YoY | Bullish (contrarian): Deposit decline to stabilize, scale advantage long-term effective |
| Genuine Parts Company | New buy | ~2,000 company stores + 4,800 independent stores; Motion revenue 2x competitor | Bullish: PE discount, high returns, scale moat |
| Merck | New buy | Keytruda could become best-selling drug ever; 2028 patent expiry | Bullish: Existing product cash flows cover stock price, pipeline value undervalued |
| American Express | Sold | Approaching intrinsic value | Neutral: Reached target valuation |
| Moody's | Sold | Approaching intrinsic value | Neutral: Reached target valuation |
| Cisco Systems | Sold | Small loss | Bearish: Fundamentals missed expectations |