The Oakmark Fund increased 1% in the second quarter of 2016, lagging behind the 2% gain for the S&P 500 Index. News of the U.K.’s decision to leave the European Union, known as Brexit, brought substantial volatility late in the quarter, and our financial holdings were pressured by fears of slower global growth and stubbornly low interest rates. At Oakmark, we evaluate businesses by summing the present value of their future cash flows, which we believe will only be minimally affected by the Brexit. We view this vote as a short-term dislocation that could actually provide buying opportunities for patient, long-term investors. Although our financial holdings were hurt toward the end of the quarter, we continue to think these are among the most attractive names in the Oakmark portfolio. Large financial institutions are in much better shape now than they were during the financial crisis of 2008-2009. We believe they are better capitalized and that most have developed a leaner cost structure and lower risk profile. On a more positive note, energy commodity prices increased significantly during the quarter, and our energy holdings benefited from this favorable pricing trend.
Our biggest contributing sectors were energy and health care, and our worst contributing sectors were consumer discretionary and industrials. Our top individual contributors were LinkedIn, Halliburton (NYSE:HAL) and Apache (NYSE:APA), and our worst contributing securities were Fiat Chrysler (NYSE:FCAM), Apple (NASDAQ:AAPL) and State Street (NYSE:STT). LinkedIn was a new holding for the Fund in the second quarter, so we’ve included a brief summary below. We eliminated our position in Franklin Resources (NYSE:BEN) during the second quarter following a reduction in our estimate of its intrinsic value, which made the stock less attractive than other alternatives. The decline in intrinsic value was related to product-specific performance issues, as well as a reduction in our outlook for active-management asset flows. Continue Reading »