The Oakmark Global Select Fund returned 2% for the quarter ended March 31, 2014, outperforming the MSCI World Index’s 1% return. For the first six months of this fiscal year, the Fund was up 9%, in line with the MSCI World Index. The Fund has returned an average of 9% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 5% over the same period.
Bank of America (BAC) was the top contributor for the quarter, returning 11%. The company's most recent quarterly earnings report demonstrated continued progress toward achieving management's expense reduction targets, driven in large part by declines in the cost of servicing its "legacy" mortgages. As management executes on its plan, investors have increasingly recognized the normalized earning power of Bank of America. We believe the combination of further operational improvements and the company's plan to return capital to shareholders – through its recently increased dividend and additional repurchase authorization – will lead to continued gains in the stock.
Daiwa Securities (TSE:8601), Japan’s second-largest broker, was the largest detractor for the quarter, falling 12%. Daiwa’s stock price was negatively impacted by general Japanese market weakness during the first quarter. FedEx (FDX) was another detractor for the quarter, falling 8%. FedEx reported weak third quarter numbers, which were significantly skewed by unusually severe weather and the company’s widely reported difficulties during the holiday season. Despite the issues with inclement weather, FedEx’s ground segment grew nicely; its volume and price grew 8% and 2%, respectively. However, in spite of this performance, the segment’s margins trailed last year’s, primarily because of hub/network expansion costs. In our view, this expansion will allow for rapid growth and share gains and is, therefore, worth the short-term costs. Finally, we believe FedEx remains focused on its shareholders and on returning capital via stock buybacks. During the most recent quarter, it repurchased approximately $2.7 billion of stock, and since its stock-repurchasing program began in October 2013, the company has repurchased 25 million — or 8% — of its outstanding shares. We expect further buybacks with 15 million shares left under the current authorization.
Geographically, 48% of the Fund’s holdings were invested in U.S.-domiciled companies as of March 31, while approximately 42% were allocated to equities in Europe and 10% to equities in Japan.
Global currencies were relatively stable during the quarter, but we continue to believe some currencies are overvalued. As a result, we defensively hedged a portion of the Fund’s currency exposure. Approximately 36% of the Swiss franc was hedged at quarter end.
We would like to thank our shareholders for continuing to support us and our value investing philosophy. We believe we have built a portfolio of high quality companies that will provide our shareholders with attractive returns over the long term.
William C. Nygren, CFA
David G. Herro, CFA
As of 3/31/14, Bank of America Corp. represented 4.7%, Daiwa Securities Group, Inc. 5.0%, and FedEx Corp. 4.6% of the Oakmark Global Select Fund's total net assets. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
Click here to access the full list of holdings for The Oakmark Global Select Fund as of the most recent quarter-end.
The MSCI World Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. This benchmark calculates reinvested dividends net of withholding taxes using Luxembourg tax rates. This index is unmanaged and investors cannot invest directly in this index.
Because The Oakmark Global Select Fund is non-diversified, the performance of each holding will have a greater impact on the Fund's total return, and may make the Fund's returns more volatile than a more diversified fund.
The percentages of hedge exposure for each foreign currency are calculated by dividing the market value of all same-currency forward contracts by the market value of the underlying equity exposure to that currency.
Investing in foreign securities presents risks that in some ways may be greater than U.S. investments. Those risks include: currency fluctuation; different regulation, accounting standards, trading practices and levels of available information; generally higher transaction costs; and political risks.
The discussion of the Fund’s investments and investment strategy (including current investment themes, the portfolio managers' research and investment process, and portfolio characteristics) represents the Fund’s investments and the views of the portfolio managers and Harris Associates L.P., the Fund’s investment adviser, at the time of this letter, and are subject to change without notice.