For the quarter, the Oakmark Select Fund declined 9%, compared to a 6% decline for the S&P 500. This brings the Fund’s return for the fiscal year that ended on September 30 to a decline of 7%, compared to a decline of 1% for the S&P 500 over the same period. Although we are disappointed with these outcomes, we have been through difficult periods before and remain thoroughly committed to the same investment process that has delivered success since the Fund’s inception.
During the quarter, Apache (NYSE:APA) (-32%) and Chesapeake (NYSE:CHK) (-32%) were our largest detractors, as commodity prices declined broadly. Our largest contributors were Google (NASDAQ:GOOG) Cl A (+19%) and Amazon (NASDAQ:AMZN) (+18%). For the fiscal year, Apache (-58%) and Chesapeake (-65%) were our largest detractors by a significant margin, and Amazon (+59%) and MasterCard (+23%) were our largest contributors. We wrote fairly extensively about Chesapeake last quarter, but an update seems warranted given the stock price’s continued weakness. In short, it wasn’t all bad news—lower oil and gas prices notwithstanding. Chesapeake renegotiated a meaningful component of its legacy high-cost transportation contracts (see last quarter’s letter for details), and this has reduced the company’s sensitivity to lower gas prices. Importantly, many of the company’s fundamentals, including production volume as well as drilling and operating costs, have been consistent with our expectations. Furthermore, one of Chesapeake’s competitors recently sold assets in the Haynesville Shale that were quite similar to those of Chesapeake; the sale price was consistent with our estimated value. At Oakmark, we always closely monitor private market transactions, which we believe are important indicators of business value. Continue Reading »