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"Why Limit Yourself to One Stock Market" - A Look at Oakmark International's Guru David Herro

Monica Wolfe

Monica Wolfe


“The best reason to invest overseas is to have greater access to undervalued companies. Why limit yourself to just one stock market? When you buy anything from a car to a washing machine, rarely is just one retailer visited. The same should be true for your investments.”

-David Herro

David Herro is a favorite among an exclusive group of international gurus. As the chief investment officer of International Equities for Harris Associates, you would think he had his hands full enough already, but Herro is also the portfolio manager of the Oakmark International Fund, the Oakmark International Small Cap Fund and the Oakmark Global Select Fund. The international guru has 28 years of investing experience under his belt and has been with Harris Associates since 1992.


Herro launched his Oakmark International fund in September 1992 and since then he’s seen strong performances in all market conditions. David Herro joined Harris Associates in Chicago in 1992 as a portfolio manager and has since then moved into the position of partner and CIO of international investments. The guru holds both a bachelor’s and a master’s degree in economics from the University of Wisconsin, and prior to his time at Harris Associates he was with the State of Wisconsin Investment Board. Herro is also a member of the Financial Analysts Federation.

Harris Associates and Oakmark International

Harris Associates, which is the advisor of the Oakmark Funds, was founded in 1976 with the purpose of providing investment advice to institutions as well as to wealthy individuals. The Oakmark Funds were brought about in 1991 in order to bring Harris Associates’ philosophies directly to a mutual fund. As of September 1995, Harris Associates became a wholly-owned subsidiary of Nvest Companies who were acquired in 2000 by IXIS Asset Management, a French institutional money management company. Despite being a subsidiary, Harris Associates has remained a fully autonomous company, retaining control of their investment decisions, investment philosophy and daily operations. The relationship with its parent company gives Harris access to additional resources for the distribution of mutual fund and separate account investment businesses.

Harris Associates’ investing philosophy is to “invest in companies trading at a significant discount to estimated intrinsic business value; companies that consistently grow in value over time; that have shareholder-oriented management teams.”

The Oakmark International fund seeks long-term capital appreciation by investing in at least five countries outside of the U.S. The fund tends to focus on securities considered to be undervalued relative to their underlying economic value. The fund’s advisors will assign long-term value primarily on the basis of a company’s ability to generate cash flow, the quality of the management, the market share and the degree of pricing power. Oakmark International may not invest more than 35% of their assets in securities of companies based in emerging markets.

The Oakmark International fund is Herro’s primary focus, and to minimize the risk of his investments Herro puts disciplined stock selection ahead of industry or country selection. As shown in the quote at the beginning of the article, Herro shops around different countries to find the best value for his money.

Achievements and Awards

In 2006 David Herro was named Morningstar’s International Stock Fund Manager of the Year in 2006. This award was given to Herro for his ability to generate exceptional returns, willingness to align his interests with shareholders’ interests and courage to stick with his strategies.

One of Herro’s most prestigious recognitions comes from Morningstar when in 2010, they named him “Manager of the Decade” for his outstanding performance and market-beating returns. Herro is oftentimes referred to as one of the best international investors because he does not look at his investments based on geography but focuses instead on individual company’s valuation and quality.

Performance and Portfolio Data

In a Barron’s article published earlier this year they report that “A $10,000 investment in his [David Herro’s] Oakmark International (OAKIX), in 1992 is now worth about $88,000, versus $34,000 for the MSCI EAFE index.” Pushing out remarkable returns is what makes David Herro one of GuruFocus’ favorite gurus. As of August, his 43% return had doubled the MSCI EAFE index.

Herro very much favors a bottom-up approach that tends to look like a great macro call. For example, late last year he began stocking up on Japanese holdings immediately before the stocks went on a rally which brought some of Herro’s holdings up to 80% higher within six months.

The international guru’s investing philosophy gives a lot of extra strength to his portfolio. Some of the main focuses for Herro’s Oakmark International fund are:

  • Buy businesses that are trading at a significant discount to his estimate of the company’s intrinsic value.
  • Invest with companies expected to grow shareholder value over time.
  • Invest with management teams that think and act as owners. Herro invests in companies with management teams that understand the dynamics of per share value growth and are focused on achieving such growth.

Herro still believes that Japan is a good market to be in. In the same interview with Barron’s Herro said, “We still think Japan is a good investment, but the market has gone up 80% from the bottom, so we have trimmed back.”

As of his most recent portfolio update, David Herro’s Oakmark International Fund holds 58 stocks valued at over $23 billion. OAKIX holds $24,272,831,500 in assets under management as of Sept. 30, 2013. Year-to-date the Oakmark International Fund has topped the MSCI World Index ex US returns, as it has since the fund’s inception. As of November 30, the Oakmark Intl Fund has seen returns of 28.43% this year compared to the 19.23% returns of the MSCI World Index.

David Herro does not hold any United States-based stocks in his portfolio; in fact nearly 75% of his international fund holds European stocks. A breakdown of Herro’s geographical holdings:

Herro’s top ten holdings make up for 31.7% of his total portfolio, and he holds half of his assets in the Financials and Consumer Discretionary sectors of the market. David Herro’s top five holdings include:

  • Credit Suisse Group (XSWX:CSGN): Herro holds on to 40,046,000 shares of Zurich-based Credit Suisse, representing 5.3% of his total assets managed and 2.52% of the company’s shares outstanding. The guru increased his position by 28.36% over the third quarter. Check out more information on Herro’s holding of Credit Suisse here.

  • Intesa Sanpaolo (MIL:ISP): Herro owns 421,326,000 shares of the Italian banking corporation Intesa Sanpaolo, representing 3.8% of his total portfolio and 2.56% of the company’s shares outstanding. The guru upped his holdings by 9% over the past quarter. Check out more data on Herro’s holding of Intesa Sanpaolo here.

  • BNP Paribas (XPAR:BNP): Herro holds on to 11,958,000 shares of Paris-based BNP Paribas, representing 3.5% of his total holdings and 0.96% of the company’s shares outstanding. Over the past quarter the guru increased his position by 11.28%. Check out more information on Herro’s holding of BNP Paribas.

  • Allianz (XTER:ALV): Herro owns 5,105,000 shares of Munich-based Allianz, making up for 3.5% of his total portfolio as well as 1.12% of the company’s shares outstanding. The guru upped his position by 59.08% over the past quarter. You can check out more information on Herro’s holdings of Allianz.

  • Daimler (XTER:DAI): Herro holds on to 9,930,000 shares of Germany-based Daimler AG, representing 3.3% his total assets managed and 1.12% of the company’s shares outstanding. During the third quarter the guru cut his holdings by -13.68%. You can view more info on Herro’s position in Daimler here.

In conclusion, we can see that Herro has a lot to teach the value investor about looking further than just the United States when it comes to stock picks. With a primary emphasis on Japan and Europe and strong track record over the past two decades, David Herro serves as an excellent example for investors who are looking to expand internationally.

Check out David Herro’s stock picks here.

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