The Oakmark Global Select Fund had a strong quarter in terms of both absolute and relative performance, returning 10.87% for the period ending March 31. The benchmark, MSCI World Index, returned 4.92% for the same quarter. Since its inception in October 2006, the Fund has returned an average of 8.86% per year, outperforming the MSCI World Index's annualized gain of 7.18% over the same period.
Daimler AG (XTER:DAI, Financial) was a top contributor for the first quarter as the German automotive manufacturer's share price soared on the announcement it would spin off a majority stake in Daimler Truck. In our view, this is momentous news that represents fundamental change by establishing two distinct companies—one, a pure-play premium car company, and the other, a global leader in trucks and buses. This transition should lead to increased accountability, allow for more agile decision-making and unlock value for shareholders. In addition to this announcement, Daimler released its full-year 2020 earnings report and the results were well above our and consensus expectations. Adjusted earnings improved dramatically in the fourth quarter and management was able to convert this into cash. As a result, the company outperformed expectations by generating more than EUR 8 billion of free cash flow. Management indicated that there would likely be "significant growth" in unit sales and that Mercedes-Benz would hit earnings margins of 8-10% in 2021. We anticipate that the global vehicle manufacturer will continue to do well throughout the year, thanks to successful cost discipline, ongoing improvement in underlying demand, and important product launches of both internal combustion engine and battery electric vehicles. We believe Daimler's management team is executing well and demonstrating strong commitment to shareholder value creation.
Credit Suisse (CS, Financial) was a top detractor for the first quarter, following a series of negative headlines in March. Early in the month, the Switzerland-based financial services firm lost ~$2 billion – $3 billion in market cap because a fund in its asset management division had exposure to the now-insolvent Greensill Capital. This market cap decline far surpassed Credit Suisse's direct exposure to Greensill and ignored the fact that a large portion of its clients' exposure was in cash, highly rated securities or insured investments. At the end of March, the company's share price dropped again when a New York-based hedge fund client, called Archegos, defaulted on its margin calls to Credit Suisse's prime brokerage business. As a result, Credit Suisse announced an expected charge of approximately CHF 4.4 billion and a first quarter 2021 pre-tax loss of approximately CHF 900 million. The company also provided updated profitability guidance that greatly exceeded analysts' estimates, although this news was largely overshadowed by the Archegos headlines. We are pleased with Credit Suisse's profitability improvements, excluding the charge, and we will continue to monitor the situation closely. We expect the company to make material changes to its risk management leadership in the wake of these events and we believe incoming Chairman António Horta-Osório will bring fresh perspective to Credit Suisse, given his impressive tenure as CEO of Lloyds Banking Group.
During the quarter, we sold our holdings of TE Connectivity (TEL, Financial) as the share price approached our estimate of intrinsic value. We initiated positions in Humana (U.S.) and SAP (Germany). Humana (HUM, Financial) is a leader and near pure play in the fastest growing sector of managed care, Medicare Advantage. Humana's growth and scale advantages have allowed the company to make targeted investments in its members' health, resulting in fewer unnecessary hospitalizations and lower chronic care costs. The company reinvests most of these savings back into the health plan, resulting in a continuously improving customer value proposition. Further, we believe Humana has a long runway ahead as it benefits from an aging population and continued conversion of the more than 60% of seniors who are still enrolled in traditional Medicare. We were able to purchase shares at a near 20% discount to the S&P 500 earnings multiple, which we believe doesn't give the company enough credit for its competitive advantages and secular growth outlook. SAP (SAP, Financial) is a global enterprise resource planning software company, specializing in customizable software for some of the largest enterprises across the globe. SAP is in the midst of transitioning customers to cloud computing and subscription-based payment models, which we believe could generate robust, long-term earnings growth despite short-term earnings volatility.
We continue to believe the Swiss franc is overvalued versus the U.S. dollar. As a result, we defensively hedged a portion of the Fund's exposure. Approximately 15% of the Swiss franc exposure was hedged at quarter end.
Geographically, we ended the quarter with 51% of the portfolio in the U.S., 45% in the U.K. and Europe, and 4% in Asia.
We thank you for your continued support.
The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund's total net assets as of 03/31/21: Credit Suisse Group 5.2%, Daimler 7.1%, Humana 5.3%, Lloyds Banking Group 6.5%, SAP 2.0% and TE Connectivity 0.0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.
