The Oakmark Fund returned 8% during the fourth quarter of 2016, hitting an all-time high NAV and bringing the calendar year to a gain of 18%. These strong results were ahead of the S&P 500, which was up 4% for the fourth quarter and up 12% for the calendar year. We are very pleased that recent performance showed a substantial reversal from the results reported to you following the fourth quarter of 2015. At that time, we reiterated confidence in our time-tested philosophy, investment process and research team. A big part of our process involves having the patience to wait for the gap between a company’s intrinsic value and its stock price to close. While that gap had been frustratingly large over the past couple of years, we maintained high portfolio weightings in the out-of-favor financials, information technology, and energy sectors. At the beginning of 2016, over 60% of the Fund’s equity assets were invested in these three sectors, and our long time horizon allowed us to maintain these high conviction levels throughout the year.
Our best contributing sectors for the fourth quarter were financials and industrials. Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) were the best individual contributors, returning 42% and 49%, respectively, for the quarter, and the financials sector as a whole returned 19%. Our lowest contributing sectors for the quarter were consumer staples and health care, but our exposure to those sectors was lower than the S&P 500’s weightings. Our worst individual securities for the quarter were News Corp (NASDAQ:NWS) and Diageo (NYSE:DEO). For the calendar year, financials and information technology were the best contributing sectors, and our best individual securities were Apache (NYSE:APA) and Cummins (NYSE:CMI) (up 46% and 61%, respectively). Our lowest contributing sectors for the calendar year were consumer staples and consumer discretionary (down 1% and up 3%, respectively), and our worst contributing securities for the calendar year were Liberty Interactive QVC and Fiat Chrysler (down 27% and 22%, respectively). Liberty Interactive QVC saw some uncharacteristic product-related revenue pressure, and Fiat Chrysler faced near-term headwinds from currencies and emerging markets. During the quarter, we added new positions in AutoNation, Baxter International and HCA Holdings (see below), and we eliminated positions in Applied Materials, Principal Financial and T. Rowe Price. Continue Reading »