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Portfolio construction

Value investing insight with Oakmark Fund portfolio managers

October 01, 2024 - 5 min read

How the Oakmark team defines value investing, the distinct attributes it looks for before selecting a stock, and the advantages of having a long time horizon through its 30-plus years are explained by Oakmark Fund Portfolio Managers Bill Nygren and Mike Nicolas.

  • Goal is to outperform the market over long periods of time and to mitigate the risk of permanent capital impairment.
  • Management team focuses on attributes important to driving business value and looks to ignore the noise of the short-term news that many investors today focus on.
  • Research team consists of generalist analysts as opposed to industry-specific analysts in an effort to continuously make cross-industry comparisons. For example, the analysts are thinking all the time how an oil stock may be more attractive than a bank stock.
  • Devil’s advocate reviews are regularly performed whereby an analyst will be tasked with presenting the bear case, or the downside case, on an existing long position. This helps to surface all risks that can be identified for any given business.
  • The compounding effect of investing in equities, especially undervalued equities, over the long term is very meaningful.

The S&P 500 Total Return Index is a float-adjusted, capitalization-weighted index of 500 US large capitalization stocks representing all major industries. It is a widely recognized index of broad US equity market performance. Returns reflect the reinvestment of dividends. This index is unmanaged and investors cannot invest directly in this index.

The price to earnings ratio (“P/E”) compares a company's current share price to its per-share earnings. It may also be known as the "price multiple" or "earnings multiple", and gives a general indication of how expensive or cheap a stock is. Investors should not base investment decisions on any single attribute or characteristic data point. Price-to-cash flow is defined as a stock’s capitalization divided by its cash flow for the latest fiscal year. The Price to Book Ratio is a stock’s capitalization divided by its book value.

GAAP stands for generally accepted accounting principles.

Before investing in any Oakmark Fund, you should carefully consider the Fund's investment objectives, risks, management fees and other expenses. This and other important information is contained in a Fund's prospectus and summary prospectus. Please read the prospectus and summary prospectus carefully before investing. For more information, please visit oakmark.com or call 1-800-OAKMARK (1-800-625-6275).

Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods. The Oakmark Fund’s portfolio tends to be invested in a relatively small number of stocks. As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund’s volatility.

The Oakmark Funds are distributed by Harris Associates Securities L.P., member FINRA. OAKMARK, OAKMARK FUNDS, OAKMARK INTERNATIONAL, and OAKMARK and tree design are trademarks owned or registered by Harris Associates in the US and/or other countries. Natixis Distribution, LLC is a marketing agent for the Oakmark Funds, a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.

Natixis Distribution, LLC (Member FINRA| SIPC), a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers, is a marketing agent for the Oakmark Funds.
 

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