Oakmark International 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 report covers Oakmark International Fund's second quarter of 2024. The fund lost 4.28%, worse than the market's 0.60% drop, mainly due to industrial and consumer stocks like CNH Industrial (farm equipment) and Ahold Delhaize (grocery chain). But the manager argues these are temporary setbacks, not fundamental problems. For example, CNH's CEO change and earnings warning don't change its long-term profit potential. They also bought Airbus (planes) because its order backlog runs to 2030, yet the stock price doesn't reflect that. For regular investors, the lesson is: short-term pain can be a buying opportunity if the business is solid. The report also shows how to use a discount vehicle like Prosus to invest in Tencent indirectly.
Oakmark Fund returned -4.28% in the second quarter of 2024, underperforming the MSCI World ex USA Index (-0.60%). Since inception, the fund has achieved a cumulative return of 8.34%, outperforming the benchmark's 6.03%. Key view: The fund's performance was dragged down by the industrials and consume
Theme and Background
This chapter is the Oakmark International Fund’s investment review for the second quarter of 2024, focusing on the fund’s quarterly performance (-4.28%), portfolio changes, and key drivers behind individual holdings. The report notes that the fund significantly underperformed its benchmark, the MSCI World ex USA Index (-0.60%), primarily due to drags from the industrials and consumer discretionary sectors.
Core Views
The author argues that the fund’s short-term underperformance represents a structural adjustment opportunity rather than a deterioration in fundamentals. Key judgments include:
- CNH Industrial’s CEO change and earnings guidance downgrade do not alter its long-term earnings potential, and the current stock price is attractive.
- Prosus remains the best discounted channel to invest in Tencent, and Tencent’s gaming business has already bottomed out and rebounded.
- New purchases of Ahold Delhaize and Airbus are driven by valuation discounts and structural industry advantages.
Key Arguments and Data
1. Fund Performance and Portfolio Structure
- Quarterly return: Fund -4.28% vs. Benchmark -0.60%
- Cumulative return since inception: Fund 8.34% vs. Benchmark 6.03%
- Regional allocation: Europe (ex-UK) 68.6%, UK 16.6%, Asia (ex-Japan) 6.7%
- Emerging markets exposure: 6.7%
2. Stock Contributions and Drags
| Type | Company | Industry | Key Data |
|---|---|---|---|
| Largest Contributor | Prosus | Technology (discounted investment in Tencent) | Strong Tencent earnings outlook, gaming business bottomed out |
| Largest Detractor | CNH Industrial | Agricultural equipment manufacturing | CEO change + 2024 earnings guidance downgrade |
| Other Detractors | Continental, Daimler Truck | Auto parts / Trucks | No specific data provided |
Oakmark International Fund Investor Class returned -4.28% in Q2, trailing the MSCI World ex USA Index’s -0.60%, with a cumulative return of 8.34% since inception.
3. New Buys and Exits Rationale
- Ahold Delhaize: One of the world’s largest grocery retailers, with the U.S. market contributing 70% of profits. Short-term headwinds include slowing food inflation and market share losses at Stop & Shop, but the author believes scale effects and defensive characteristics can support long-term returns.
- Airbus: Forms a duopoly with Boeing, with orders booked through 2030. The author argues that the current valuation does not reflect structural profit growth from fixed-cost absorption and scaling of profitable projects.
- Exited Recruit Holdings: Stock price approached intrinsic value, with capital reallocated to more undervalued opportunities.
Companies/Assets Involved
| Company | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Prosus | Largest contributor | Dutch company, discounted investment in Tencent | Bullish |
| CNH Industrial | Largest detractor | U.S. agricultural equipment maker, CEO change + earnings guidance downgrade | Bullish (long-term earnings potential unchanged) |
| Ahold Delhaize | New buy | U.S. profit share 70%, short-term headwinds | Bullish |
| Airbus | New buy | Duopoly, orders through 2030 | Bullish |
| Recruit Holdings | Exited | Japanese HR company, stock price near intrinsic value | Neutral (exited) |
Investment Insights
- Contrarian positioning in agricultural equipment: CNH Industrial’s CEO change and short-term demand weakness are already priced in, but the structural improvement trend in the agricultural equipment market remains intact, with the current valuation offering a margin of safety.
- Investing in Chinese tech via a discounted channel: Prosus remains the best discounted vehicle for Tencent exposure, with Tencent’s gaming business bottoming out as a catalyst.
- Focus on defensive consumer leaders: Ahold Delhaize’s short-term market share losses present a buying window, with scale effects and defensive attributes providing downside protection.
- Structural opportunity in the aviation duopoly: Airbus’s order backlog and cost optimization will drive profit growth, a prospect not fully reflected in the current valuation.