Instead of trying to pick election outcomes or central bank moves, we try to value businesses based on fundamentals.
Value isn't just a style of investing at Harris Associates - it's the only way of investing. David G. Herro, CFA®, Deputy Chairman, Portfolio Manager, and CIO, International Equities at Harris Associates (sub-adviser of the Oakmark International Natixis Funds), has adhered to the same high-conviction investment process since joining the firm 25 years ago. Their consistent, research-driven approach to finding quality companies around the world that can be purchased at a significant discount to their true business value1 has proven to be very effective through the years.
Value of active, high-conviction equity investing
Long-term value investor David Herro, Deputy Chairman, Portfolio Manager, and CIO, International Equities at harris Associates (investment advisor of The Oakmark Funds) has adhered to teh same patient, high-conviction investment process since joining the Chicago-based firm 25 years ago. This consistent, research-driven approach to international investing has proven to be very effective through the years. In fact, Morningstar USA named herro International Stock-Fund Manager of the Year** for 2016, as well as Manager of the Decade*(2000-2009).
Value is all Oakmark does
At Oakmark, value isn't just a style of investing - it's the only way of investing. All managers employ the same philosophy and process. They have a strong belief that superior, long-term results are achieved through investing as owners in quality companies that can be purchased at a significant discount to their true business value. Overall, Herro and his colleagues focus on exploiting value where they can find it. That means they often appear to be contrarians.
Chaos creates opportunity
While events like Brexit are often traumatic and very difficult to stomach, they can provide opportunity for those who are patient. Herro and Co-manager Michael Manelli used Brexit to actively increase exposure to select companies that realized a wider discount to intrinsic value. "No matter the geopolitical landscape, we continually search for and invest with companies that are committed to putting shareholders first and are trading at large discount to our perception of their true worth," said Herro. This discipline is deeply embedded at Oakmark.
Select European equities remain attractive
Despite the uncertainly caused by Brexit and a recent general election in the U.K., which resulted in a lost majority for the still-governing Conservative Party, Herro believes the British economy is performing acceptably well with a 2% year-over-year growth rate (through June 30, 2017). "To be sure, economic challenges remain, but the weaker pund sterling has aided currency-sensitive sectors such as exporters and tourism," said Herro. meanwhile, strong employment has indicated that the recession many predicted has not materialized. Furthermore, he points out that economic sentiment in the Eurozone reached its highest level in June in nearly a decade.
All portfolio managers at Harris Associates focus on exploiting value where they can find it. That means they often appear to be contrarians. For example, while events like Brexit can cause panic selling, they tend to provide opportunity for those who are patient, long-term investors. In fact, the Harris team used Brexit to actively increase exposure to companies they believed to be quality businesses selling at bargain prices. "No matter the geopolitical landscape, we continually search for and invest with companies that are committed to putting shareholders first and are trading at large discounts to our perception of their true worth," said Herro.
Historically, Harris Associates' high-conviction approach has led to high Active Share,2 meaning their portfolios look significantly different from those of their respective benchmarks. In fact, as of December 29, 2017, the Oakmark International Natixis Funds have an Active Share of 89%. This means that the relative security weights of each portfolio are 89% different from its benchmark - creating strong potential to generate alpha, returns in excess of the benchmark.
1 This investment philosophy is based upon the belief that, over time, a company's stock price converges with Harris Associates' estimate of its intrinsic or true business value. By "true business value", Harris Associates means an estimate of the price a knowledgeable buyer would pay to acquire the entire business. Harris Associates believes that investing in securities priced significantly below their true business value presents the best opportunity to achieve the fund's investment objective.
2 Active Share is a measure of the differentiation of the holdings of a portfolio from the holdings of its appropriate passive benchmark index.