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.
This report argues that bond investors should stop trying to predict interest rates or the economy, because those forecasts are almost always wrong. Instead, focus on simple, resilient companies. The author highlights healthcare bonds—like those from life-science real estate trusts and managed-care firms—which are strong fundamentally but priced as if they’re in trouble. That makes their yields attractive. For regular investors, the takeaway: don’t chase macro guesses; look for solid businesses whose bonds offer a good risk-adjusted return.
Oakmark’s Q3 2025 Fixed Income Report emphasizes a “simplify” investment philosophy: complex strategies that cannot be succinctly explained are often risk signals. Over the past few years, market predictions on macro factors such as Fed rate cuts and tariff shocks have repeatedly missed the mark—at
The chapter opens by asserting that the core discipline of fixed income investing is "simplification"—investment opportunities that cannot be explained concisely and clearly are often risk signals. The report reviews the market's repeated failures in macroeconomic forecasting over recent years: at the end of 2023, the consensus held that the U.S. deficit would push long-term interest rates higher, but the 10-year Treasury yield subsequently fell by nearly 80 basis points, with Treasury returns reaching the mid-teens; at the end of 2024, the market priced in eight rate cuts by October 2025, but only one materialized; in April 2025, tariff expectations triggered recession fears and a sharp widening of credit spreads, yet spreads are now narrower than before the tariffs were announced (implying lower credit risk). The author uses this to argue that building portfolios around macroeconomic forecasts is an unreliable strategy.
Harris | Oakmark takes the opposite approach: it does not predict the Fed's next move or the path of inflation, but instead focuses on companies and borrowers that can withstand volatility. The core investment thesis is that the current credit risk in the healthcare sector is worth holding—this sector is often mistakenly perceived as overly complex due to regulatory, reimbursement cycle, and utilization volatility, but it contains high-quality assets whose spreads imply permanent impairment. The contrarian judgment is that the market has overreacted to negative narratives about the healthcare sector (e.g., weak biotech financing, rising utilization), causing its bond yields to exceed Treasuries, with ample risk compensation.
| Company | Role | Key Data | View |
|---|---|---|---|
| Alexandria Real Estate | Life science campus REIT | Owns irreplaceable campuses in Boston, San Francisco, San Diego; balance sheet is among the strongest in REITs | Bullish: permanent impairment implied by spreads is inconsistent with fundamentals |
| Centene | Managed care | Market leader; most Medicaid contracts have been repriced; exchange pricing will be significantly raised in 2026 | Bullish: utilization pressure is temporary, with long-term return to mid-single-digit margins |
| CVS | Integrated healthcare (pharmacy, PBM, managed care) | Leverage declining; early 2025 results improving; PBM regulatory reform momentum waning | Bullish: bonds trade at a discount, multiple cash flow levers, management focused on repairing the balance sheet |
| UnitedHealth / Elevance | Peer comparison | CVS bonds trade at a discount | No explicit view, used only as a valuation comparison reference |
Investors should increase holdings of credit bonds in the healthcare sector that have strong fundamentals but are excessively penalized in spreads, with specific directions including: Alexandria Real Estate (life science campus REIT), Centene (managed care), and CVS (integrated healthcare). These targets share common characteristics: business models that can be simply explained, ability to withstand cyclical fluctuations, current yields exceeding Treasuries, and ample risk compensation. The report recommends ignoring macro noise and complex narratives, focusing instead on verifiable long-term fundamentals.