SECOND QUARTER, 2024
- The Fund returned -3.11% versus -1.56% for the MSCI World ex USA Small Cap Index (Net) for the quarter. Since its inception in November 1995, the Fund has returned an average of 8.42% per year.
- At the sector level, the largest contributors were financials and information technology, while the largest detractors were consumer staples and communication services.
- Geographically, 53.9% of the portfolio was in Europe ex U.K., 19.5% in the U.K. and 7.9% in Asia ex Japan. For the quarter, Japan, the U.K. and Norway were contributors to the relative performance of countries owned. Sweden, Germany and Spain were detractors from relative performance. Emerging markets accounted for 11.7% of the portfolio.
TOP CONTRIBUTOR | DETRACTOR
Top contributor
Atea (OSL:ATEA, Financial) was the top contributor during the quarter. Atea is a Norwegian-headquartered, value-added reseller of hardware, software, and services in the Nordic region. First quarter results exceeded consensus expectations. While hardware revenue declined as expected against a difficult comparison, revenue grew in software and services, and both gross and operating margins increased to a greater degree than expected. We continue to believe Atea's market leadership and strong management leave it well positioned in a growing market and that the stock offers attractive upside.
Top detractor
TeamViewer (XTER:TMV, Financial) was the top detractor during the quarter. In May, the German application software company reported reasonable results, although billings were somewhat light of expectations as a result of multi-year contract timing. While the market focused on the lower billings cadence, management confidently reiterated full year guidance and continues to buy back stock. We like TeamViewer's technology given the capabilities of its backend code, which enables users to connect with extremely low latency. The company is well positioned to promote internet-of-things (IOT) and augmented reality (AR) connectivity and should be a prime beneficiary of the resulting growth.
PORTFOLIO ACTIVITY
Consistent with our investment philosophy, we added to several stocks that underperformed during the period despite our view that intrinsic value was relatively unchanged, including Dometic, TeamViewer, Katitas, and TIS. We also reduced exposure to stocks where the gap relative to intrinsic value narrowed, including Konecranes, DS Smith, and Sulzer.
Purchases
Bravida Holding (OSTO:BRAV, Financial) is the Nordic region's leading provider of solutions for the service and installation of electrical, heating and plumbing, HVAC and other technical functions in buildings and facilities. Bravida is primarily exposed to non-residential construction, remodeling, and services, each of which is more defensive than construction spending overall, enabling a structurally growing earnings profile. Longer term, it is likely that Bravida's through-cycle organic growth can increase as electrification intensifies demand for installation content and environmentally-conscious remodeling. We also like that Bravida's management team has expanded the company's scale and scope of business through accretive acquisitions, and since the region's installation market is quite fragmented, we believe there is ample opportunity for continued value creation. The stock price has come under pressure recently due to the construction cycle slowdown, but we believe Bravida will fare better than its peers thanks to its advantaged business mix and profit-aligned operating model. This provided the opportunity to purchase shares in the company at a discount to our estimate of intrinsic value.
Embotelladora Andina (AKO.A, Financial) is a pan-Latin-America Coca-Cola bottling and distribution franchisee listed in Chile. We appreciate that both Andina and Coca-Cola are benefiting from changes in the nature of bottler agreements, including recently established concentrate pricing agreements between bottlers and Coca-Cola that bring more visibility on the ROI-attractiveness of investments made by bottlers for growth. In addition, a large segment of Andina's business operates in the refillable bottles space, which has high barriers to entry and increases the competitive strength of Andina's distribution capabilities. Andina shares have recently suffered from multiple compressions due to regional macro-political headwinds in 2022 and 2023. However, the company demonstrated consistent earnings growth and expanding returns over this same time period. In spite of the improving business quality and easing political tension, Andina shares recently traded near a 15-year low multiple, and we were happy to purchase shares of the company at a discount to other quality bottlers and our estimate of the company's business value.
PORTFOLIO MANAGERS
(Year joined Harris | Oakmark)
David G. Herro, CFA (1992)
Michael L. Manelli, CFA (2005)
Justin D. Hance, CFA (2010)
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.
