Kip 25

Oakmark International Disappoints Us

When this fund is good, it shines relative to peers, but when it is bad, it fares far worse.

Dumping a fund when it is down defies a basic investing rule: Buy low and sell high. It’s one reason we’ve stuck by Oakmark International (OAKIX), despite a turbulent run recently. When this fund is good, it is awesome relative to peers, but when it is bad, it fares far worse.

In 2012, 2013, 2016 and 2017, Oakmark International delivered returns that ranked among the top 9% of its peers (funds that invest in a mix of bargain-priced and fast-growing foreign stocks in developed countries). But those outstanding years failed to offset the bad years. In 2018, the fund lost 23%, lagging its peers by nearly nine percentage points.

Things got measurably worse for the fund in 2020. All told, between February 2018 and March 2020, the fund lost 45%. That lags both its peers and the MSCI EAFE index, which tracks foreign stocks in developed countries, by more than 20 percentage points.

To be fair, value-oriented foreign stocks, this fund’s focus, have lagged growth-oriented shares. The performance gap is expansive. Over the past five years, the MSCI EAFE Growth index, which tracks foreign stocks with the fastest growing earnings in foreign developed countries, has returned 5.9% annualized. The MSCI EAFE Value index has sunk 0.8% on average per year. “Today, our portfolios trade at near all-time discounts to their historical averages,” lead manager David Herro wrote in a semi­annual report, “trading at around 40 cents on the dollar.” Two holdings, BNP Paribas and Credit Suisse Group, traded at discounts last seen during the 2007–08 financial crisis, despite stronger balance sheets.

For now, we’re putting Oakmark International on watch as we consider other foreign value funds for the Kiplinger 25. That said, we’re still confident that value investing will come back and, eventually, Oakmark International will, too.

Finding a worthy replacement will be tough. Herro is a hard act to follow. During his 28-year tenure, he was named Morningstar’s international fund manager of the year in 2006 and 2016. In 2010, he was Morningstar’s international stock fund manager of the decade. Herro now runs the fund with Michael Manelli.

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