Oakmark International Fund: Second Quarter 2011

Theme and Background

This section presents the average annualized total return data for the Oakmark International Fund (Investor Class) as of June 30, 2011, and discloses the fund's fee structure. The report aims to present the fund's historical performance across different time horizons, particularly highlighting the differences between long-term and short-term returns.

Core Thesis

The report's implicit core judgment is that the fund demonstrates steady long-term performance but exhibits significant short-term volatility, with a standout one-year return. Investors should note the impact of fees on net returns. The counterintuitive point is that despite a one-year return as high as 28.62%, the 10-year annualized return is only 8.95%, suggesting that short-term high returns may be unsustainable and that the long-term compounding effect is more critical.

Key Arguments and Data

The report supports its views with return data across multiple time horizons, with all figures preserved:

• Long-Term Performance: Since its inception in 1992, the annualized return is 10.89%, and the 10-year return is 8.95%, indicating the fund's ability to generate sustained value over nearly two decades.
• Short-Term Volatility: The one-year return is as high as 28.62%, far exceeding the long-term average, but the three-month return is only 2.12%, implying that short-term gains may be driven by market cyclical trends and carry a risk of pullback.
• Fee Impact: The gross expense ratio is 1.08% (as of September 30, 2010), a cost that directly erodes net returns, especially under the long-term compounding effect.

Companies/Assets Involved

• Oakmark International Fund (Investor Class): The core fund analyzed in the report, with no specific holdings mentioned. The fund serves as the investment vehicle, and the report uses its historical performance data to demonstrate investment value. The report does not explicitly take a bullish or bearish stance but implicitly affirms the fund's long-term stability.

Investment Implications

• Long-Term Holding Outperforms Short-Term Trading: The fund's 10-year annualized return of 8.95% is significantly higher than the 5-year return of 5.09%, indicating that long-term holding can smooth out short-term volatility and generate more stable compounding returns.
• Beware of the Unsustainability of Short-Term High Returns: The one-year return of 28.62% may be driven by market cyclical factors. Investors should not use this as a future expectation but should instead focus on the long-term average.
• Fees Are a Key Variable for Net Returns: A gross expense ratio of 1.08% can significantly compress actual returns under long-term compounding. Investors should compare fee levels across similar funds and prioritize share classes with lower expense ratios (e.g., institutional class).