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.”
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
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
-
If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us?A retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
This Is How You Can Adapt to Social Security UncertaintyRather than letting the unknowns make you anxious, focus on building a flexible income strategy that can adapt to possible future Social Security changes.
-
What Fed Rate Cuts Mean For Fixed-Income InvestorsThe Fed's rate-cutting campaign has the fixed-income market set for an encore of Q4 2024.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Dividends Are in a RutDividends may be going through a rough patch, but income investors should exercise patience.
-
Municipal Bonds Stand FirmIf you have the cash to invest, municipal bonds are a worthy alternative to CDs or Treasuries – even as they stare down credit-market Armageddon.
-
The Kiplinger 25: Our Favorite No-Load Mutual FundsThe Kiplinger 25 The Kiplinger 25 is a list of our top no-load mutual funds that have proven capable of weathering any storm.
-
High Yields From High-Rate LendersInvestors seeking out high yields can find them in high-rate lenders, non-bank lenders and a few financial REITs.
-
Time to Consider Foreign BondsIn 2023, foreign bonds deserve a place on the fringes of a total-return-oriented fixed-income portfolio.
