Oakmark International Fund: First 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
This is Oakmark International Fund's Q1 2023 letter to investors. The fund returned 13.9%, beating the global stock market (8.0%), by buying undervalued companies (deep value investing). Manager David Herro highlights two key holdings: Continental, a German tire and auto parts maker, whose car business is recovering; and Glencore, a Swiss mining giant, whose energy trading is booming despite short-term mining issues. The fund also bought Eurofins (lab testing) and Brenntag (chemical distribution), seeing growth potential. For regular investors, this shows how to find opportunities when others are pessimistic and spot turnarounds in cyclical industries like autos and mining. Worth reading for a pro's stock-picking insights.
Oakmark International Fund returned 13.9% in the first quarter of 2023, outperforming its benchmark, the MSCI World ex U.S. Index (8.0%). Since its inception in September 1992, the fund has delivered an annualized return of 8.7%, also surpassing the benchmark (5.8%). The primary contributor was Germ
Theme and Background
This chapter is the Oakmark International Fund's letter to investors for the first quarter of 2023, reviewing the fund's performance, the quarterly performance of major holdings, and portfolio adjustments during the period. The report notes that the fund returned 13.9% for the quarter, outperforming the benchmark MSCI World ex U.S. Index (8.0%), and highlights fund manager David Herro's views on the market environment.
Core Thesis
The author's core investment argument is that through deep value stock selection and active management, the fund can consistently outperform the benchmark. This is specifically demonstrated by:
- Contrarian judgment: When the market doubted the profitability of Continental's automotive segment, the author believed clear signs of recovery had emerged; despite Glencore's short-term earnings miss, the author remained optimistic about its long-term value.
- Since its inception in 1992, the fund has achieved an average annual return of 8.7%, consistently surpassing the benchmark (5.8%), validating the effectiveness of its investment strategy.
Key Arguments and Data
- Continental (Germany): In 2022, the automotive segment achieved organic growth of approximately 13%, with its fourth-quarter margin recovering to 2.1%; the tire segment contributed 19.3% growth driven by pricing and product mix, with performance at the high end of guidance. After discussions with the CEO, the author believes management is on the right track, and improvements in external supply chain constraints and light vehicle production will drive performance.
- Glencore (Switzerland): EBIT grew 84% year-over-year in 2022 but fell short of expectations, primarily due to headwinds from industrial operations (coal, production issues at copper assets Katanga and Mt. Isa, and cost inflation); adjusted earnings from the energy marketing business reached $6.38 billion, nearly double the upper end of the long-term guidance range. The company announced an additional $7.1 billion in shareholder distributions, which was below market expectations. The CEO indicated that the company plans to double its copper business over the next decade through brownfield expansions and a greenfield project in Argentina.
| Company | Key Data | Author's Judgment |
|---|---|---|
| Continental | Automotive segment organic growth of 13%, Q4 margin of 2.1%; tire segment contributed 19.3% growth | Bullish, believes the earnings improvement trend is clear |
| Glencore | EBIT +84% YoY, energy marketing earnings of $6.38 billion; additional $7.1 billion in distributions | Short-term earnings miss, but long-term value is undervalued |
Fund average annualized return of 8.69% since inception, 13.91% for the most recent quarter, expense ratio of 1.04%
Companies/Assets Involved
- Continental (Germany): One of Europe's largest tire and automotive parts manufacturers. The author is bullish, believing its automotive segment has returned to profitability, the tire segment is performing strongly, and management is on the right track.
- Glencore (Switzerland): One of the world's largest mining companies. The author is bullish, despite short-term headwinds from industrial operations, as the energy marketing business exceeded expectations and management is committed to creating value through copper business expansion and shareholder distributions.
- Grupo Televisa ADR (Mexico), Philips (Netherlands), Rolls-Royce Holdings (UK), Credit Suisse Group (Switzerland): Sold during the quarter, as the author believed other holdings offered greater upside potential.
- Eurofins Scientific (Luxembourg): Newly purchased. A laboratory services company with 940 labs across 59 countries. The author is optimistic about its long-term growth in pharmaceutical, food, and environmental testing, as well as the alignment of interests due to the founder's high ownership stake.
- Brenntag (Germany): Newly purchased. A top global chemical distributor serving approximately 100,000 customers. The author believes it has high-growth opportunities in the specialty chemical distribution market, and management's restructuring plan is expected to narrow the performance gap.
Investment Insights
- Focus on cyclical industry recovery turning points: The Continental case shows that after supply chain constraints ease and cost inflation is absorbed through pricing, cyclical industries like auto parts may see earnings recovery. Investors can monitor similar opportunities.
- Long-term value vs. short-term volatility in mining companies: Glencore's performance divergence highlights that industrial operations in mining are heavily impacted by production volumes and costs, but energy marketing businesses and long-term copper demand (e.g., from electric vehicles and renewable energy) may offer excess returns. Investors need to distinguish short-term noise from long-term value.
- Industry logic behind new purchases: Both Eurofins and Brenntag operate in high-barrier, high-growth niches (lab testing and chemical distribution), with management having clear growth plans. Investors can look for similar "hidden champion" companies whose moats and growth potential may be underestimated by the market.