Top Global Fund Places Contrarian Bets
02/14/2011 1:18 pm EST
Oakmark International’s focus on its holdings’ ultimate value to an acquirer has paid off time and again, write Russel Kinnel and Shannon Zimmerman in Morningstar FundInvestor.
Oakmark International Fund’s (OAKIX) unusual approach has led to unusual success.
Morningstar International-Stock Manager of the Decade David Herro and co-manager Rob Taylor invest in firms whose current stock prices reflect substantial discounts to their estimates of acquisition price. This “true business value” approach spans Oakmark’s offerings, underscoring the shop’s belief that, eventually, stock prices reflect a company’s actual worth. That philosophy isn’t unusual for a value-focused fund, but Herro and Taylor’s willingness to invest in firms that don’t strike traditional value profiles is.
[For more on the top holdings of this and other hot international funds, look here–Editor.]
Swiss-based luxury-brands concern Compagnie Financiere Richemont (OTC: CFRUY), for example, is held mainly by large-cap blend and growth funds. It was a substantial 2010 contributor here, though, appearing among the fund’s top 10 positions at midyear. Richemont’s runup (and plumper multiples) has led the team to reduce its stake to just 1% of assets.
Rival managers might reject Richemont on valuation grounds. Not Herro and Taylor. They like the firm’s substantial emerging-markets footprint, while the firm’s geographically diverse revenue stream hedges against developed Europe’s economic doldrums.
Betting on Better From Toyota
A similarly against-the-grain take on Toyota (NYSE: TM) has propelled that automaker to a top portfolio position.With conventional wisdom perpetually soured on Japan, the team sees broad opportunity amid the country’s increasingly shareholder-friendly culture. Against that backdrop, they liked Toyota’s recent management upgrade and the firm’s dominant market share--fundamental strengths eclipsed by negative investor sentiment about Japan and overstated concerns about Toyota’s recent recalls.
The fund’s approach requires patience, and investors shouldn’t expect it to win every calendar-year campaign. Performance can be out of sync with category norms, too. It posted a slight loss in 2007 (a decent year for the peer group), but notched returns in 2008 that, while grim in absolute terms, hovered near the peer group’s top third. That owed in part to timely investments in fundamentally strong firms like consumer-credit service Experian (OTC: EXPGY) and financial-data provider Thomson Reuters (NYSE: TRI).
All told, Oakmark International has delivered remarkable relative and absolute long-term performance. It’s been a volatility champ, too, suffering roughly 95% of the peer group’s declines while enjoying nearly 110% of its gains en route to an annualized return of 10.9% since inception.
Skin in the Game
Both managers have invested more than $1 million of their own money here, clearly aligning their interests with shareholders’. That’s reflected not only in the fund’s below-average price tag but also in its tax efficiency. Through the end of 2010, the fund’s three-, five-, and 10-year returns rank among the peer group’s very best.
Oakmark International features a talented management team and a sensible, repeatable investment approach. It won’t often move in tandem with category rivals, but, as the terrific track record here shows, that’s a feature of this fund, not a bug.