President's Letter

Theme and Background

This chapter is a letter from Rana Wright, President of Oakmark Funds, to shareholders, reviewing the performance, product innovation, and leadership succession for the fiscal year 2025 (ended September 30, 2025). The market environment was highly volatile: the fourth quarter of 2024 saw sharp divergence in global equity markets, with a strong U.S. dollar, geopolitical tensions, and trade uncertainty pushing U.S. stocks to record highs, while non-U.S. markets faced headwinds.

Core Thesis

The author's core investment thesis is: Adhere to the value investing philosophy, and through product innovation and orderly leadership succession, generate long-term compounding returns for shareholders in volatile markets. Counterintuitive judgments include: amid market panic caused by tariff uncertainty, Oakmark actively added to undervalued assets rather than reducing positions to hedge; although most funds underperformed their benchmarks in the short term, the author believes absolute performance and inflation-adjusted returns remain "solid."

Key Arguments and Data

Performance: For fiscal year 2025, Oakmark Funds overall delivered "solid absolute returns" and outperformed inflation, but all funds except the Bond Fund lagged their primary benchmarks. U.S. funds performed steadily during tariff-related volatility but fell behind in the final months of the fiscal year as growth stocks surged. The International Fund slightly underperformed its benchmark due to poor performance from several financial holdings.
Product Milestones:
Launched the first ETF: Oakmark U.S. Large Cap (OAKM), offering the value investing strategy in a more flexible structure.
Oakmark Bond Fund celebrated its fifth anniversary, consistently and significantly outperforming its benchmark since inception.
Oakmark International Small Cap Fund and Oakmark Equity and Income Fund both marked their 30th anniversaries, outperforming their benchmarks since inception.
Filed for two new ETFs to expand international and global capabilities.
Leadership Succession: Tony Coniaris was appointed Co-CIO of the International team, co-leading with David Herro.
Insider Ownership: As of September 30, 2025, employees of Harris Associates, their families, fund officers, and trustees collectively held over $1 billion in Oakmark Funds, demonstrating strong alignment of interests.

Fund/Milestone	Key Data
Oakmark U.S. Large Cap (OAKM)	First ETF, offering a more flexible structure
Oakmark Bond Fund	5 years since inception, significantly outperforming benchmark since inception
Oakmark International Small Cap Fund	30 years since inception, outperforming benchmark since its creation
Oakmark Equity and Income Fund	30 years since inception, outperforming benchmark since inception
Insider Ownership	Over $1 billion (as of September 30, 2025)

Companies/Assets Involved

Oakmark Funds (Overall): Delivered solid absolute returns and outperformed inflation in fiscal year 2025, but most funds lagged benchmarks; the Bond Fund was a highlight, significantly outperforming its benchmark.
Oakmark U.S. Large Cap (OAKM): A newly launched ETF designed to attract investors with a flexible structure. The author is bullish.
Oakmark Bond Fund: Celebrated its fifth anniversary, consistently outperforming its benchmark. The author is bullish.
Oakmark International Small Cap Fund: 30th anniversary, long-term outperformance of its benchmark. The author is bullish.
Oakmark Equity and Income Fund: 30th anniversary, long-term outperformance of its benchmark. The author is bullish.
Harris Associates (Parent Company): Will celebrate its 50th anniversary in 2026, emphasizing alignment of management and shareholder interests.

Investment Implications

Value Investing is Effective in Volatile Markets: The report shows that actively adding to undervalued assets during tariff-driven panic and low valuations can create value. Investors should focus on fund managers who dare to take contrarian positions during periods of fear.
Product Structure Innovation is a Growth Driver: The launch and filing of ETFs indicate that traditional active management funds are attracting capital through more flexible structures (e.g., ETFs). Investors can monitor the liquidity improvements and fee optimization resulting from such transitions.
Leadership Succession Ensures Long-Term Performance: The promotion of Tony Coniaris shows Oakmark's focus on internal development and orderly transitions. Investors should assess the stability of a fund company's talent pipeline to avoid style drift due to the departure of key personnel.
Insider Ownership is a Signal of Trust: Insider holdings exceeding $1 billion indicate a strong alignment of management and shareholder interests, an important metric for evaluating the governance quality of a fund company.