SECOND QUARTER, 2024
- The Fund returned -3.01% versus 2.63% for the MSCI World Index (Net) for the quarter, and 9.14% since inception, versus 6.23% for the MSCI World Index (Net) over the same period.
- At the sector level, the largest contributors were communication services and financials, while the largest detractors were industrials and health care.
- Geographically, 53.6% of the portfolio was in the U.S., 32.7% in Europe ex U.K. and 9.7% in the U.K. For the quarter, the U.K., Japan and the Netherlands were contributors to the relative performance of countries owned. The U.S., Germany and Ireland were detractors from relative performance. Emerging markets accounted for 4.0% of the portfolio.
TOP CONTRIBUTOR | DETRACTOR
Top contributor
Alphabet (GOOG, Financial) was the top contributor during the quarter. The stock price rose after the U.S.-based communication services company reported first-quarter operating income growth of 31% versus the prior year. We believe management's cost reduction initiatives will improve operating efficiency and lead to faster earnings growth. In addition, we expect the company's new AI-powered features showcased at the recent Google I/O conference will increase the value of its products to users. At its current share price, we continue to see upside to our estimate of Alphabet's intrinsic value.
Top detractor
CNH Industrial (CNH, Financial) was the top detractor during the quarter. The U.S.-headquartered manufacturer of agriculture and construction equipment announced that CEO Scott Wine will be replaced by Gerrit Marx, CEO of Iveco Group, effective July 1, 2024. Scott made significant contributions to CNH Industrial in the areas of product, technology, and cost efficiency and we were disappointed to see him leave the business. We met with both Executive Chair Suzanne Heywood and Scott in April, which provided insight into management change. CNH In-dustrial also slightly reduced guidance for 2024 when reporting first quarter results due to a weaker agriculture equipment market. This reduction was consistent with our forecasts and does not impact our view of the long-term profitability potential of the business. We believe that CNH Industrial's position within the structurally attractive agriculture equipment market will improve in the coming years. As a result, we continue to believe the stock is compelling.
PORTFOLIO ACTIVITY
Purchases
Deere & Company (DE, Financial) is a leading manufacturer of agricultural equipment with dominant market share positions in North America and Brazil. Despite its brand strength, technological capabilities and distribution advantages, the company's stock price has recently come under pressure due to investor fears of a trough in the current agriculture business cycle. Longer term, however, world population and food demand are expected to increase annually with land and labor devoted to agriculture set to decline each year. As a technological leader, we believe Deere is well-positioned to benefit from this dynamic as farms will need to become more pro-ductive. We also like that the company's manage-ment team has a strong track record of growing the business organically through cycles, continuously improving returns on invested capital and returning capital to shareholders. We believe Deere is worth about the same P/E as high -quality industrials, so we were excited to buy it at roughly two-thirds that level.
Etsy (ETSY, Financial) is a global marketplace for unique and creative goods that connects millions of buyers and sellers across the world. We first became interested in Etsy in 2017 when Josh Silverman took over as CEO and began transforming the company from a borderline nonprofit into a higher margin, faster-growing enterprise. The Covid-19 pandemic accelerated the company's already strong fundamental results as millions of new customers flocked to the platform, but like many other Covid-19 beneficiaries, Etsy has since fallen deeply out of favor. In our view, investors today are too focused on the timing of Etsy's return to growth and are ignoring the company's positive long-term outlook. We believe the macro environment for Etsy's product categories will eventually improve and Etsy is poised to benefit. At the same time, we believe Etsy's continued push into international markets can provide a solid source of revenue growth for the long-term. After the recent sell-off, we were able to purchase shares at a discount to our estimate of intrinsic value.
PORTFOLIO MANAGERS
(Year joined Harris | Oakmark)
David G. Herro, CFA (1992)
Eric Liu, CFA (2009)
Tony Coniaris, CFA (1999)
M. Colin Hudson, CFA (2005)
John A. Sitarz, CFA, CPA (2013)
Past performance is no guarantee of future results. The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted. Total return includes change in share prices and, in each case, includes reinvestment of dividends and capital gain distributions. The investment return and principal value vary so that an investor's shares, when redeemed, may be worth more or less than the original cost.
The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers' research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change and may change based on market and other conditions without notice.
This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.
Certain comments herein are based on current expectations and are considered “forward-looking statements.” These forward looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.
