Oakmark International Fund: First Calendar Quarter 2025

Theme and Background

This chapter provides a performance review and investment activity summary for the Oakmark International Fund in the first quarter of 2025. The report notes that the fund outperformed its benchmark index during the quarter, offering a detailed analysis of the main contributors and detractors, while also disclosing newly established and liquidated positions. It focuses on the current valuation attractiveness of international markets.

Core Views

The author's core investment thesis is that most international markets are currently attractively valued, presenting a favorable opportunity for active position-building. Counterintuitive judgments include: 1) Despite WPP's earnings falling short of expectations and its stock price declining, the author believes its free cash flow and profit margins remain robust, with the market excessively discounting its fundamental value; 2) When tariff and macroeconomic concerns drove down LVMH's stock price, the author viewed it as a rare buying opportunity, anticipating a mid-cycle recovery for the industry.

Key Arguments and Data

• Performance: The fund's investor class shares returned 7.88% for the quarter, outperforming the MSCI World ex USA Index's 6.20%; since inception, cumulative returns stand at 8.37%, surpassing the index's 6.07% over the same period.
• Sector Contribution: Financials and healthcare were the largest contributors; communication services and information technology were the biggest detractors.
• Country Allocation: The top three countries are Germany at 24.2%, France at 20.2%, and the UK at 14.8%; emerging markets account for 8.1%. Japan, Germany, and China contributed to relative performance, while France, Switzerland, and Spain were detractors.
• Stock-Level Data:
• BNP Paribas: Stock price rose, benefiting from strong performance in Corporate & Institutional Banking (CIB) and retail banking, with revenue growth outpacing cost growth, leading to improved efficiency.
• WPP Group: Stock price fell due to Q4 2024 results and 2025 guidance missing expectations, impacted by client losses, restructuring disruptions, and reduced client spending, though profit margins and free cash flow remained resilient.
• LVMH: Owns 75 brands, focusing on fashion and leather goods, with the Bernard Arnault family holding a 41% stake. The author believes its valuation is below peers and historical levels.
• Asahi Group Holdings: Japan's largest beer company, benefiting from liquor tax reform and price increases, with high-margin markets in Australia and Central Europe.
• Mitsubishi Estate: The largest owner in Tokyo's Marunouchi district, with low office vacancy rates and rising rents; the author bought at a price below net asset value and comparable transactions.
• Flutter Entertainment: The world's largest online gambling company, owning brands like FanDuel, ranking first in most markets, and benefiting from industry growth.
• Rentokil Initial PLC: The world's largest pest control company; the stock price fell due to integration challenges following the Terminix acquisition, but the author believes it will ultimately succeed and undergo a revaluation.

Companies/Assets Involved

Investment Insights

• Focus on Valuation Discount Opportunities: The report emphasizes that when tariff and macroeconomic concerns drive down the stock prices of high-quality companies (e.g., LVMH), these should be viewed as buying opportunities rather than reasons to avoid risk.
• Bet on Cyclical Recovery: For companies like WPP and Rentokil, which face short-term pressure but have solid fundamentals, the author believes the market is overly pessimistic, and future growth recovery and successful integration will drive stock revaluation.
• Focus on Structural Growth Areas: Long-term trends such as Japan's liquor tax reform and the increasing penetration of online gambling provide clear growth paths for Asahi and Flutter.
• Emphasize Management Quality: Bernard Arnault of LVMH and Atsushi Katsuki of Asahi are cited as excellent managers, with their capital allocation capabilities being a key factor in investment decisions.