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Holly LaFon
Holly LaFon
Articles (8477) 

David Herro and Bill Nygren's Oakmark Global Select Fund Commentary for 2nd Quarter 2017

Review of holdings and markets

July 11, 2017 | About:

The Oakmark Global Select Fund returned 6.2% for the quarter ended June 30, 2017, outperforming the MSCI World Index’s 4.0% return. Most importantly, the Fund has returned an average of 8.8% per year since its inception in October 2006, outperforming the MSCI World Index’s annualized gain of 5.3% over the same period.

CNH Industrial (NYSE:CNHI), a global agricultural and construction equipment manufacturer, was the top contributor for the quarter, returning 18%. The company delivered positive first quarter earnings, as both its revenue and earnings exceeded consensus estimates. The industrial business saw an improvement with its year-over-year earnings increasing 34%, driven primarily by a 77% improvement in the agriculture equipment segment. The industry has seen stabilization in global agricultural equipment markets and is beginning to see the early stages of restocking. Also during the quarter, S&P raised CNH’s credit rating to investment grade, which should allow the company to improve its balance sheet efficiency and refinance its debt at lower rates.

GE (NYSE:GE), a global producer of industrial, household and medical goods, was the largest detractor for the quarter, declining 9%. Shares were weak due to the company’s exposure to energy end markets (which was increased via its merger with Baker Hughes, a contrarian acquisition we believe will prove to be well timed). The stock was also hurt by an analyst downgrade during the quarter, which cited concerns that GE’s cash flows were lagging behind the company’s reported profits. In our view, this concern will prove to be irrelevant to the long-term investment case, as two of GE’s longest cycle businesses (aviation and power) are in the midst of their largest new product launches ever, both of which require large investments in inventory and other working capital accounts that will reverse over time. In addition, GE has recently worked to reinvent its portfolio and possesses a renewed focus on achieving appropriate capital returns. As such, the company completely revamped its variable compensation plan for thousands of employees who are now paid on a number of factors that emphasize improving its return on invested capital. We believe such changes will lead to much better performance and that GE’s long-term outlook, therefore, remains promising.

Geographically, 50% of the Fund’s holdings were invested in U.S.-domiciled companies as of June 30, while approximately 50% were allocated to equities in Europe.

We continue to believe some currencies are overvalued. As of quarter end, approximately 10% of the Swiss franc exposure was hedged.

We thank you, our shareholders, for your continued support and confidence.

William C. Nygren, CFA
Portfolio Manager
[email protected]

David G. Herro, CFA
Portfolio Manager
[email protected]

Anthony P. Coniaris, CFA
Portfolio Manager
[email protected]

Eric Liu, CFA
Portfolio Manager
[email protected]

The securities mentioned above comprise the following percentages of the Oakmark Global Select Fund’s total net assets as of 06/30/17: CNH Industrial NV 6.6%, General Electric Co. 4.9% and Baker Hughes, Inc. 0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.

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