Oakmark Global Select Fund: Q1 2022 Commentary

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Oakmark Global Select Fund – Investors Category

Average annual total returns 03/31/22

Since inception 02/10/06 8.25%

10 years 9.56%

5 years 7.95%

1 year -0.13%

3 months -7.12%

Gross expense ratio: 1.12%

Net expense ratio: 1.10%

Expense ratios are based on the estimated amounts for the current financial year; actual expenses may vary.

The net expense ratio reflects a contractual agreement to waive advisory fees through January 27, 2023.

Past performance is not indicative of future results. Performance data quoted represents past performance. Actual performance may be lower or higher than quoted performance data. Investment return and principal value vary so that an investor’s shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance data, see here.


The Oakmark Global Select fund fell 7.1% for the quarter ended March 31, 2022, underperforming the MSCI World Index, which returned -5.2%. However, the Fund has recorded an average return of 8.3% per year since its inception in October 2006, surpassing the 7.4% annualized gain of the MSCI World Index over the same period.

Bayer (OTCPK: BAYRY) (Germany), a life sciences company with pharmaceuticals, consumer health and cultural science divisions, was a top contributor to Fund performance for the quarter. The company reported strong results for 2021, in our view, with growth exceeding expectations across all divisions. Notably, the crop science division recorded 11% growth, showcasing a solid recovery after two years of agricultural downturn and competitive challenges. Management’s increased guidance for crop sciences in 2022 calls for 7% organic growth and a 25-26% margin, which we believe is a key positive for the segment as it signals a favorable transition both expected towards profitable growth. In the pharmaceuticals division, sales growth of more than 7% also exceeded expectations, supported by a strong recovery of Eylea, the continued growth of Xarelto and the list of new products. Additionally, Bayer’s pipeline saw notable successes during the period, including a favorable reading for cancer drug Nubeqa. We spoke with Bayer Chief Financial Officer Wolfgang Nickl during the quarter, who noted that the tailwinds are robust in the business today. In particular, he expressed confidence in pricing and the competitive environment in the crop science industry as rate increases overlap with sales growth and cost reductions begin to materialize. Nickl also reiterated Bayer’s expectations for continued growth in pharmaceuticals, driven in large part by new launches and technologies.

Prosus (OTCPK:PROSF) (Netherlands), due to its 29% stake in Tencent and the impact of the Russian invasion of Ukraine, was a notable detractor for the first quarter. Tencent was negatively impacted by fears of increased regulation and a poor macro backdrop which negatively impacted fundamentals. We spoke with many contacts about the changing regulatory landscape in China. Although we believe that Tencent’s structural growth will be weaker in the future due to the new regulatory environment, it is still an excellent company with a high degree of innovation. Later in the quarter, Russia’s invasion of Ukraine weighed on companies exposed to Russia. In the case of Prosus, its two Russian assets, Avito (the largest online classifieds company in Russia) and Mail.ru (the largest social media company in Russia), are now worthless, in our estimation, and have resulted in a slight reduction in our estimate of the intrinsic value of Prosus. Although we closely monitor any new developments, we continue to believe that Prosus remains extremely undervalued compared to its sum of the parts.

In addition, we initiated the following position during the quarter:

  • Netflix (NFLX) (US) is the leading streaming entertainment service with 222 million subscribers and $30 billion in revenue. This scale creates a valuable gap, which allows the company to buy more content than its competitors overall, but pay less per subscriber. This dynamic has created a more compelling customer proposition as the business has grown, which we expect to see translate into a larger subscriber base over time. Shares of Netflix have fallen significantly in recent months as market participants reacted to slowing subscriber growth and pressure on margins. We think it’s likely that both of these issues are temporary. Growth slowed as the economy reopened, but this came on the heels of a period of rapid acceleration at the start of the pandemic. The pressure on margins is mainly linked to exchange rates. Netflix’s cost base is mostly denominated in dollars, which means falling foreign currency values ​​are putting pressure on profit margins. After the stock pullback, Netflix is ​​trading for 5.5x consensus 2022 revenue and 34x consensus EPS, which is compelling in the context of our expectations for future growth and profitability. We greatly admire Netflix’s leadership team and the company’s unique corporate culture. We are excited to invest alongside them as they capitalize on the huge opportunity in streaming entertainment.

We continue to believe that the Swiss franc is overvalued against the US dollar. Therefore, we defensively hedged some of the Fund’s exposure. Approximately 15% of the Swiss franc exposure was hedged at the end of the quarter.

Geographically, we ended the quarter with 55% of the portfolio in the US, 37% in the UK and Europe and 8% in Asia.

We thank you for your continued support.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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