Kip 25

Oakmark International Finds Bargains in European Stocks

A new fund joined the Kip 25 in July 2017, bringing in bargains from across the pond.

David Herro has either managed or comanaged Oakmark International (OAKIX) since its launch, in September 1992. Over that nearly 25-year-long period, the fund has earned an annualized 10.1%. That beat the MSCI EAFE index, which tracks large firms in developed foreign markets, by an average of four percentage points per year. Put another way, a $10,000 investment in International at its inception would be worth $106,000 today; the same amount in an EAFE index fund would be worth $41,000.

Herro is a classic bargain hunter, an approach he learned by reading the works of Benjamin Graham, considered the father of value investing. He and comanager Michael Manelli seek firms with executives who act like owners, that generate positive free cash flow (cash earnings after capital expenditures) and that reinvest profits wisely.

The final test is price: The managers buy only if a stock sells for at least 30% below their assessment of a firm’s intrinsic value per share—what a buyer would pay to acquire the entire business. “We’re looking for companies that can create value, which I define as growth in free cash flow per share,” says Herro. “We don’t care how they do it, as long as free cash flow is rising.”

Lately, Herro and Manelli have been finding the most-attractive prospects in Europe. Oakmark has about three-fourths of its assets there, with financial-services firms, consumer-related companies and industrial stocks representing the biggest sector weightings. At last report, the fund’s top holding was Glencore, a global mining company headquartered in Switzerland. Other large positions included the United Kingdom’s Lloyds Banking Group, German automaker Daimler and CNH Industrial, an Anglo–Dutch maker of agricultural and construction equipment.

Getty Images

Like nearly all actively managed funds, International occasionally suffers through poor stretches. For instance, in 2007 the fund lost 0.5%, while the EAFE index gained 11.2%. “We don’t aim to have volatile periods,” says Herro. “We aim to take advantage of volatility by buying quality at a lower price, and sometimes that results in short-term underperformance. We’re willing to take short-term pain to make long-term gains.”

See Also: 26 Best Funds for Your Retirement Nest Egg

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

T. Rowe Price Financial Services Banks on a Turnaround
Stock Market Today

T. Rowe Price Financial Services Banks on a Turnaround

This fund is a good way to bet on an economic rebound.
February 24, 2021
DSTL: A Value Fund With a Twist
Becoming an Investor

DSTL: A Value Fund With a Twist

The fund’s 51.3% return since its inception in 2018 has more than tripled that of traditional value funds.
February 24, 2021
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021
Earth-First Funds Are Soaring
Markets

Earth-First Funds Are Soaring

Funds with sustainability in mind are super popular these days; these six are ready to deliver returns.
February 24, 2021