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 quarterly report explains how a fund manager navigated a calm market despite scary headlines like Russia-Ukraine conflict and ISIS. He argues these events don't hurt the long-term value of his holdings. He's bullish on European banks like Credit Suisse and BNP, which fell on US regulatory fines—he sees those as one-time hits, not permanent damage. He also likes Japanese stocks because government reforms (like better corporate governance) could boost their value. The takeaway: don't panic over news; focus on whether companies are fundamentally sound.
The Oakmark International Fund and Oakmark International Small Cap Fund delivered positive returns in a low-volatility market environment, but slightly underperformed their respective benchmarks. The relatively weak quarterly performance was driven by two factors: 1) underweight allocation to direct
This chapter discusses the quarterly performance of the Oakmark International Fund and International Small Cap Fund in a low-volatility market environment. Although the market was disrupted by macro events such as the Russia-Ukraine conflict and ISIS's invasion of Iraq, volatility remained extremely low except for a surge in oil prices. The funds achieved positive returns but slightly underperformed their benchmark.
The author argues that macro-geopolitical events, such as Russia's annexation of Crimea, do not structurally impact companies' future free cash flows and therefore did not shake confidence in European holdings. Regulatory fines imposed on Credit Suisse and BNP are one-time events that do not impair their long-term business value. Although Japan was the worst-performing market, government-driven corporate governance reforms and pension reforms have reopened the "value gap."
| Company/Asset | Role | Key Data | View |
|---|---|---|---|
| Credit Suisse | Core holding | Share price fell due to U.S. regulatory fines | Bullish: Business value unimpaired, adequate capital, potential for recovery |
| BNP | Core holding | Share price fell due to U.S. regulatory fines | Bullish: Solid business model, potential for recovery after legal settlement |
| Japanese equities (overall) | Allocation direction | Worst-performing developed market in 2014; government pension fund size $1.4 trillion | Bullish: Reforms open value gap, weak share prices but rising business value |