The Oakmark International Small Cap Fund returned 9% for the quarter ended March 31, 2015, outperforming the MSCI World ex U.S. Small Cap Index, which returned 4% for the same period. Since the Fund’s inception in November 1995, it has returned an average of 10% per year.
The top performing stock in the Fund this past quarter was Michael Page International (LSE:MPI), a U.K.-based professional recruitment firm. The Fund owns a number of other European staffing companies, including Randstad (XAMS:RAND) (Netherlands), Brunel (XAMS:BRNL) (Netherlands) and Sthree (LSE:STHR) (U.K.), all of which were also strong contributors during the quarter. Even with high unemployment rates, staffing companies have maintained acceptable earnings due to strong demand and pricing despite market fears. Michael Page (LSE:MPI) particularly benefited from improved sentiment in Europe and a growing sense that hiring activity will increase. Because of the company’s high exposure to the more volatile permanent placement market, its earnings are especially sensitive to increased hiring trends. During 2014 Michael Page reported a respectable 15% year-over-year increase in EBIT. We expect the rate of EBIT growth to accelerate further in the coming years due to continued growth in hiring activity as well as Michael Page’s productivity improvements, driven by a new IT system.
The Fund’s largest detractor for the quarter was Melco International Development (HKSE:00200) (Hong Kong), which is a developer and owner of casino gaming and entertainment resort facilities in Asia. Casino revenues in Macau were weak due to China’s anti-corruption campaign, difficult year-over-year comparisons and a weaker macro environment. Although we continue to monitor the market, we remain optimistic about Macau’s long-term prospects, given low penetration of Chinese visitors, continued wealth creation of Chinese citizens and large infrastructure projects, which should help facilitate the growth of Macau.
We added two new securities to the Fund during the quarter: China ZhengTong Auto Services (HKSE:01728), one of the five largest auto dealerships in China with 70 full-service dealerships and additional showrooms across the country, and Outotec (OHEL:OTE1V), a Finland-based supplier of processing plants to the metals and minerals sector. During the quarter we sold Kansai Paint (TSE:4613) (Japan), Oracle Japan (TSE:4716) and Goodman Fielder (ASX:GFF) (Australia) from the Fund.
Geographically, we ended the quarter with 64% of our holdings in Europe, 21% in Asia and 11% in Australasia. The remaining positions are in North America (Canada and the U.S.), Latin America (Brazil) and the Middle East (Israel).
At current U.S. dollar valuations we still maintain hedge positions on three of the Fund’s currency exposures. As of the recent quarter end, the Fund’s Australian dollar and Norwegian krone hedges decreased to 23% and 10%, respectively, and with the currency movement due to the unpegging of the Swiss franc to the euro in January 2015, our Swiss franc exposure increased slightly to 29%.
We thank you for your continued support.
David G. Herro, CFA
Portfolio Manager
[email protected]
Michael L. Manelli, CFA
Portfolio Manager
[email protected]
As of 03/31/15, Michael Page International PLC represented 2.6%, Randstad Holding NV 1.4%, Brunel International NV 0.8%, Sthree PLC 1.0%, Melco International Development, Ltd. 1.9%, China ZhengTong Auto Services Holdings, Ltd. 0.3%, Outotec Oyj 1.3%, Kansai Paint Co., Ltd. 0%, Oracle Corp. Japan 0%, and Goodman Fielder, Ltd. 0% of the Oakmark International Small Cap 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 International Small Cap Fund as of the most recent quarter-end.
The MSCI World ex U.S. Small Cap Index (Net) is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance, excluding the U.S. The MSCI Small Cap Indices target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million. 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.
Oakmark International Small Cap Fund: The stocks of smaller companies often involve more risk than the stocks of larger companies. Stocks of small companies tend to be more volatile and have a smaller public market than stocks of larger companies. Small companies may have a shorter history of operations than larger companies, may not have as great an ability to raise additional capital and may have a less diversified product line, making them more susceptible to market pressure.
Oakmark International Small Cap 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.
Oakmark International Small Cap Fund: 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.
