Oakmark International Fund: Third Calendar Quarter 2025

Theme and Background

This chapter serves as the opening of the Oakmark Fund's third-quarter 2025 report, summarizing the fund's quarterly performance, regional allocation, major contributors and detractors, as well as portfolio adjustments (adding 6 positions and closing 9). The report emphasizes that the focus this quarter was more on the future than short-term performance, with the team making progress in process optimization and portfolio rebalancing.

Core Viewpoint

The author's core judgment is: The current environment presents a favorable opportunity to invest in high-quality companies, despite short-term market volatility and industry headwinds that have driven valuations of some quality names to historical lows. Counterintuitively, the report actively increased positions even as the fund underperformed its benchmark for the quarter, arguing that market concerns over tariffs, regulation, and other risks are excessive, while fundamentals have not structurally deteriorated.

Key Arguments and Data

Regional Allocation: The top three regions are Europe ex-UK (68.4%), UK (11.5%), and Asia ex-Japan (9.3%); emerging markets account for 10.4%. China and France contributed the most during the quarter, while the US and Denmark were the largest detractors.
Stock Contributions:
Top Contributors: Kering (new CEO appointment + Gucci debut expectations), Alibaba Group, Glencore.
Top Detractors: CNH Industrial (weak agricultural equipment demand, but management sees a bottom in 2025), Edenred, DSV.
New Buy Rationale:
Bunzl: A distribution leader whose stock fell to a 15-year valuation low due to execution missteps in North America, but the industry structure remains unchanged, and management is quickly correcting course.
Dassault Systèmes: A leader in virtual twin technology with a high switching-cost moat; the stock has declined nearly 40% from its peak, offering a buying opportunity.
FEMSA: A Latin American retail/beverage giant, with OXXO convenience stores and a stake in Coca-Cola FEMSA; it trades at a discount due to tariffs and Mexican market volatility, while actively buying back shares and paying dividends.
Hexagon: A provider of sensor and software solutions; new management is expected to improve ROCE and cash flow, with the stock undervalued due to weak end markets.
Intertek Group: The world's third-largest TIC (testing, inspection, and certification) company, asset-light with high customer retention; its valuation is near a decade low due to tariff and regulatory concerns.
Siemens Healthineers: A medical technology leader, with margin expansion potential from a turnaround in its diagnostics business; the stock is undervalued due to temporary headwinds.
Closed Positions: Amadeus IT Group, Lloyds Banking Group, NAVER, Open Text, Siemens, Smith & Nephew, Smiths Group, Swatch Group, WPP.

Companies/Assets Involved

Company	Role	Key Data/Rationale	Bullish/Bearish
Kering	Top Contributor	New CEO appointment + Gucci debut expectations, improving revenue trends	Bullish
CNH Industrial	Top Detractor	Weak agricultural equipment demand, but management sees a bottom in 2025; industry #2 with potential for profit expansion	Bullish
Bunzl	New Buy	Distribution leader, stock at 15-year low, management correcting course	Bullish
Dassault Systèmes	New Buy	Virtual twin technology, stock down 40% from peak, high switching costs	Bullish
FEMSA	New Buy	OXXO + Coca-Cola FEMSA, trading at a discount, buybacks and dividends	Bullish
Hexagon	New Buy	Sensors/software, new management improving ROCE, low valuation	Bullish
Intertek Group	New Buy	TIC #3, valuation near decade low, accelerating growth	Bullish
Siemens Healthineers	New Buy	Medical technology leader, diagnostics turnaround, margin improvement	Bullish

Investment Insights

Contrarian Positioning: Current market concerns over tariffs, regulation, and cyclical headwinds have driven valuations of certain high-quality companies (e.g., Intertek, FEMSA, Bunzl) to historical lows, presenting buying opportunities.
Focus on Structural Growth: Sectors such as virtual twins (Dassault), medical technology (Siemens Healthineers), and TIC (Intertek) offer long-term growth and defensive characteristics.
Monitor Management Changes: New management or strategic shifts at companies like Kering, CNH Industrial, and Hexagon could serve as stock catalysts.
Beware of Short-Term Risks: Agricultural equipment (CNH Industrial) and luxury goods (Kering) still face weak demand, requiring attention to signs of a bottom in 2025.