We purchased several new names during the quarter, including Glencore as well as some previous holdings of the Fund, such as Bureau Veritas (France), Nomura (Japan), Omron (Japan) and Swatch Group (XSWX:UHRN) (Switzerland), that we were able to repurchase due to fundamental changes or price volatility. Swatch (XSWX:UHRN) is the dominant player in the Swiss watch market, making up approximately 30% of the industry’s revenues and over 60% of its volume. Furthermore, Swatch’s manufacturing arm produces approximately 75% of all finished movements and has a market share above 90% in some key components. Yet challenging fundamentals and concerning headlines created a recent buying opportunity for us to become shareholders of Swatch Group again. Over the past year shares declined by 30% as demand from China weakened and concerns about Apple’s smart watch dented sentiment. We believe these are short-term issues that Swatch will overcome. Swiss watches are niche and, in our opinion, are unlikely to be materially impacted if smart watches gain mass market status. The majority of Swiss watches are purchased for artistic/aesthetic value, not the functional attributes that smart watches tout. Thus, they do not compete directly with smart watches and are unlikely to be hurt significantly if and when smart watches gain mass market status. We therefore believe the fears of a major disruption from smart watches are overblown. Additionally, we expect the Chinese market will eventually recover since emerging market consumers’ demand for luxury goods continues to grow.
From David Herro (Trades, Portfolio)'s Oakmark International Fund Second Quarter 2015 Commentary.
