David Herro Market Commentary | 4Q12 — Summary & Takeaways · Oakmark Funds

Theme and Background

This section presents the performance data of the Oakmark International Fund and the Oakmark International Small Cap Fund as of December 31, 2012, providing investors with the returns and fee structures of the two funds across different time horizons.

Core Thesis

The report's central judgment is that both funds achieved positive returns, with long-term (10-year) returns significantly outperforming short-term (5-year) returns, indicating the effectiveness of a value investing strategy over the long term. Counterintuitively, although 5-year returns were lower due to market volatility (e.g., the financial crisis) at 3.52% and 1.80%, the 1-year returns were as high as 29.22% and 18.39%, respectively, demonstrating a strong short-term rebound.

Key Arguments and Data

Oakmark International Fund: Since its inception in 1992, the annualized return is 10.37%, the 10-year annualized return is 11.23%, the 1-year return is 29.22%, and the expense ratio is 1.06%.
Oakmark International Small Cap Fund: Since its inception in 1995, the annualized return is 9.95%, the 10-year annualized return is 12.41%, the 1-year return is 18.39%, and the expense ratio is 1.41%.
The comparative data is as follows:

Metric	Oakmark International Fund	Oakmark International Small Cap Fund
Annualized Return Since Inception	10.37% (since 1992)	9.95% (since 1995)
10-Year Annualized Return	11.23%	12.41%
5-Year Annualized Return	3.52%	1.80%
1-Year Return	29.22%	18.39%
3-Month Return	13.82%	8.69%
Expense Ratio (as of September 30, 2012)	1.06%	1.41%

Companies/Assets Involved

Oakmark International Fund: The fund itself, with strong performance, a 1-year return of 29.22%, and a relatively low expense ratio (1.06%), bullish.
Oakmark International Small Cap Fund: The fund itself, with a 1-year return of 18.39% and a higher expense ratio (1.41%), but its 10-year annualized return (12.41%) outperforms the International Fund (11.23%), bullish.

Investment Insights

Long-term holding of value-oriented international funds: Both funds achieved 10-year annualized returns exceeding 11%, indicating that an international value investing strategy can effectively navigate cycles over a 10-year horizon. Investors should focus on long-term returns rather than short-term fluctuations.
Fee sensitivity in small-cap funds: The small-cap fund's expense ratio (1.41%) is higher than that of the large-cap fund (1.06%), but its 10-year annualized return is also higher (12.41% vs. 11.23%). Investors need to weigh the cost-effectiveness of fees versus excess returns.
Short-term rebound opportunities: The 1-year returns (29.22% and 18.39%) show a strong rebound after market lows, but the 5-year returns (3.52% and 1.80%) highlight risks. It is recommended that investors avoid chasing highs and selling lows, and instead adhere to dollar-cost averaging or long-term holding.