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Fund Times

Oakmark Slumps, but Potential Remains

There are plenty of reasons to stay the course with this struggling fund.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Oakmark (OAKMX) can recover from its plunge during the coronavirus sell-off. It retains its Morningstar Analyst Rating of Gold.

The fund fell 33% for the year to date through March 17, 2020, landing in the large-blend Morningstar Category's basement and lagging the S&P 500 by nearly 12 percentage points. Sore spots included energy, with Apache (APA) losing more than three fourths of its value and Concho Resources (CXO) sliding more than 50%. Travel- and leisure-related MGM Resorts (MGM) and American Airlines (AAL) have faced major pressure. The fund's heavy helping of financials didn't help, either, with interest rates at zero. Automotive-related stocks have struggled, including Fiat Chrysler Automobiles (FCAU), which has temporarily shut down some facilities amid the pandemic.

The portfolio has had little shelter. Its value bent relative to the benchmark and category peers has weighed on results in recent years. It also doesn't tilt toward the quality stocks that one would expect to hold up well in a sell-off. Valuation concerns have largely kept it away from traditional growth stocks that have enjoyed a long run and held up slightly better than their value counterparts from mid-February to mid-March. Regeneron Pharmaceuticals (REGN) was the only holding with a year-to-date gain through March 17 on hopes of a coronavirus vaccine in development. Netflix (NFLX), while down, has shielded losses better than most.

More pain could be on the way, but also opportunity. Longtime manager Bill Nygren and his team, who have survived other downturns, work off a list of approved stocks vetted by a three-person committee. After the market's steep decline on March 16, Nygren reported that all but two of the 120 approved stocks were trading below their buy targets. Like 2008, the managers see opportunities to buy stocks at half of their buy targets, which fits the team's value-oriented, long-term approach. That doesn't mean it's all upward from here, but the fund's big rebound in 2009 and its success dating back to its 1991 inception offer reasons to stay the course.

Katie Rushkewicz Reichart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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