Oakmark International Fund: Fourth Calendar Quarter 2024

Theme and Background

This chapter serves as the opening overview of the Oakmark Fund's fourth-quarter 2024 report, primarily summarizing the fund's quarterly performance, key contributors and detractors, new holdings, and the regional distribution of the portfolio. In terms of market context, the fund underperformed its benchmark during the quarter but has maintained superior cumulative performance since inception.

Core Views

The author argues that despite short-term performance pressure (quarterly return of -8.48%), the fund holds high-quality companies with extremely low valuations, making the medium- to long-term outlook still optimistic. A counterintuitive judgment: the decline in the largest detractor, Bayer, was mainly driven by developments in the PCB litigation and weak 2025 guidance. However, the author believes these factors have limited impact on value, and the new CEO's restructuring plan is expected to unlock potential.

Key Arguments and Data

• Quarterly Performance: The fund returned -8.48%, trailing the MSCI World ex USA Index's -7.43%; cumulative return since inception stands at 8.19%, outperforming the index's 5.92%.
• Regional Allocation: Europe (ex-UK) accounts for 71.5%, the UK 15.1%, Asia (ex-Japan) 5.7%, and emerging markets 5.7%. During the quarter, Denmark, the United States, and France contributed relative returns, while Germany, Japan, and Canada were detractors.
• Sector Contribution: The communication services sector contributed positive returns; healthcare and financials were the largest detractors.
• Airbus: Orders grew across all segments in the third quarter, with the commercial aircraft and helicopter divisions seeing significant year-over-year increases, and the Space division's orders rising nearly 30%; inventory increased 11% year-over-year; November deliveries exceeded expectations.
• Bayer: The Washington Supreme Court agreed to hear the appeal from plaintiffs in the PCB litigation, increasing the risk that the previous appellate court victory could be overturned; preliminary 2025 guidance indicates potential profit declines, with agricultural earnings falling short of expectations, partly due to temporary regulatory issues and partly due to challenges in the crop protection portfolio.
• New Holding KB Financial Group: South Korea's largest bank, boasting the strongest capital position in the industry, a low-cost deposit franchise, and leading fee income; management focuses on shareholder returns (dividends and buyback growth provide downside protection).

Companies/Assets Involved

Investment Implications

• Short-term pressure does not alter medium- to long-term logic: The fund underperformed in the quarter, but the author emphasizes that company quality and low valuations provide a margin of safety. Investors should focus on fundamental improvements in portfolio holdings (e.g., Airbus capacity growth, Bayer restructuring).
• Clear regional preference: Europe (ex-UK) is the core allocation (71.5%), while emerging markets (5.7%) account for a small share, but the new purchase of a Korean bank suggests interest in beneficiaries of Asian financial reforms.
• Contrarian positioning opportunities: Bayer and Kering saw share price declines due to short-term negative factors, but the author views these as temporary challenges and used the weakness to increase positions. Investors can look for similar targets undervalued due to litigation or weak demand.
• Bank stock value revaluation: The investment thesis for KB Financial Group is based on the South Korean government's "value-up program," which drives improvements in capital efficiency and shareholder returns. Similar themes also present investment opportunities in other Asian markets, such as Japan.