Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
Oakmark’s Q&A explains why it missed some gains in AI infrastructure stocks, how it maintains valuation discipline and how it addresses market concentration. The author is uncertain whether some AI companies’ high profit margins are sustainable. Energy exposure has halved from a year earlier: ConocoPhillips and Targa Resources together account for less than 6% of the portfolio. Nike and Corebridge Financial are discussed as investment cases; prospective return judgments are the author’s views.
Oakmark’s Q&A explains why it missed some gains in AI infrastructure stocks, how it maintains valuation discipline and how it addresses market concentration. The author is uncertain whether some AI companies’ high profit margins are sustainable. Energy exposure has halved from a year earlier: Conoco
1. Why did Oakmark not fully participate in this year's value stock rally?
The author points out that the strong performance of the value index this year was primarily driven by AI infrastructure companies (e.g., computer, memory, and semiconductor manufacturers). Although these companies have low P/E ratios, meeting some criteria for value investing, Oakmark lacked sufficient confidence in the sustainability of their earnings growth (whether it is permanent or cyclical) and deemed the risk too high to invest. The author emphasizes that over half of this year's gains in the Russell Value Index came from these AI-related stocks.
The author adds a key piece of information: as of the end of June, Russell had reclassified most AI infrastructure companies from the value index to the growth index. This implies that if Oakmark's judgment is correct (i.e., these companies' earnings are cyclical), any future decline in these stocks will primarily impact the growth index, rather than causing the value index to give back all its gains.
2. On the definitional difference of "mid-cap stocks"
The author clarifies the different market-cap classification standards between Oakmark and Morningstar:
The author emphasizes that the "mid-cap stocks" held by Oakmark are not the same as the mid-cap stocks that performed well this year. The strong-performing mid-cap stocks are typically smaller companies with high growth potential and high valuations, unlike the low-valuation large enterprises held by Oakmark.
3. Has recent underperformance led to changes in the research process?
The author acknowledges that recent performance prompted the team to establish a quantitative team to analyze historical performance and optimize research efficiency. A key finding was that the team previously tended to assume their directional judgment was correct for most holdings, without adequately adjusting probabilities based on post-investment business performance. The author likens this to "ignoring new information that a team is already leading 3-0 in a baseball game."
Based on this, the team has now made two adjustments:
4. The most misunderstood aspect of Oakmark's investment philosophy
The author believes the market generally views Oakmark as a value investor that can only invest in "below-average" companies. The author refutes this, stating that price determines value, and any company can be a value stock at the right price. Oakmark Fund's largest holdings—Salesforce, Airbnb, and Intercontinental Exchange—have typical growth business records but are currently priced at what is considered good value.
5. How do you weigh the cost of missing opportunities due to valuation discipline?
The author states they are more concerned about forecasting errors on their holdings, as this could lead to capital loss. Valuation discipline excludes many hot stocks, but they are not worried about missing stocks whose prices have risen. The author notes that if their primary risk were "tracking error" (deviation from the index), they would be more concerned about stocks they do not own.
6. How do high inflation and high interest rates affect valuation?
The author explains the logic of their valuation model (discounted cash flow model):
7. How do you view the disconnect between market performance and fundamentals?
The author believes this disconnect is unsustainable in the long run (either prices go to infinity or zero). They firmly believe that fundamentals and stock prices will eventually converge and view the disconnect as an opportunity. Since market disconnects can last longer than before, Oakmark strongly prefers companies that are willing to aggressively repurchase their own stock when it is undervalued. Companies buying back undervalued stock enhances per-share value for remaining shareholders and helps convert excess selling pressure into excess demand.
8. How do you view the valuation risk from some companies' profit margins being at historical highs?
The author believes that for the overall market, a moderate improvement in profit margins relative to historical levels is sustainable. Most companies benefit from lower tax rates, economies of scale, and better cost control, which are considered sustainable drivers of profitability.
The author notes that some AI-related companies have benefited from a sudden surge in profit margins. Using semiconductor companies as an example, their historical profit margins were typically around 10%, while current expected margins can reach 30% or higher. Specific cases include:
The author believes it is very difficult to assess the "normal" recurring earnings of these companies. Most of these companies have more than doubled their revenue from two years ago, while Micron has achieved a 10-fold increase. The author understands that investors driven by FOMO (Fear Of Missing Out) see risk in not holding these stocks—if earnings "merely" stay at current levels, these stocks could still be good investments. However, the author warns that if current earnings are at a cyclical peak, the downside risk could be substantial.
For Oakmark, the most important risk is that shareholders fail to achieve their financial goals. Therefore, they often ask: "Is the probability high that this investment will generate at least a 10% return over the foreseeable future?" Given the volatile earnings or short histories of many of today's market leaders, they can rarely answer this in the affirmative.
1. Long-Term Performance and Risk Control
2. Diversification Value
3. Value Investment Opportunity
1. The S&P 500 Index is No Longer a Broadly Diversified Index
2. The Value of Management Fees
Is the market about to crash or correct?
The author notes that the market experiences a 10% correction on average every one to two years, with about half of these evolving into a 20% decline. Oakmark believes corrections are unpredictable and therefore does not engage in market timing. They advise shareholders to periodically rebalance their portfolios to their target asset allocation, so they have the capacity to increase positions when the market declines.
The author argues that over the past decade, the earnings growth of large-cap tech companies (e.g., the "Magnificent Seven") has not only failed to revert to the mean due to competition, as is typical, but has actually accelerated. They compare the 2019 consensus market expectation for the "Magnificent Seven's" 2026 earnings with the current expectation, finding that the current expectation is roughly double the 2019 estimate. The author states they have never seen such a large-scale acceleration in growth for companies of this magnitude.
Therefore, the author attributes most (though not all) of the outperformance of growth stocks to their exceptionally strong fundamentals. However, they do not expect these fundamentals to repeat over the next decade. If this judgment is correct, they anticipate the P/E gap between current high-P/E and low-P/E stocks will narrow, which is typically favorable for value investors.
The Oakmark Fund currently holds only two energy stocks: ConocoPhillips (COP) and Targa Resources (TRGP), which together account for less than 6% of the portfolio, roughly half the position size from a year ago. The author believes the Iran war pushed oil prices to unsustainable levels, and some energy stocks were sold upon reaching valuation targets. They continue to hold ConocoPhillips and Targa Resources because they believe they remain undervalued and are well-managed.
The author believes the entire portfolio, including financial stocks, is priced to generate at least a 10% annualized return through moderate growth, dividends, and share buybacks, so no valuation expansion is required. However, they also believe the fundamentals of financial stocks warrant a higher valuation multiple. For bank stocks, the author argues that investors still overestimate the risk and fail to fully recognize their higher capital ratios and more conservative lending standards compared to before the financial crisis. They believe bank stocks should trade at P/E ratios comparable to electric utility stocks, but are currently about 4 P/E points lower.
Nike has lost approximately 80% of its value relative to the S&P 500 Index over the past three years. Oakmark only bought it last year, thus avoiding most of the decline. The author believes Nike's main problems are: increased competition in the Chinese market, and the previous management's mistakes in product distribution (attempting to bypass retailers and sell directly to consumers). Their reason for buying is the belief that returning CEO Elliott Hill can repair relationships with retailers and steer the company back on track. Nike's current stock price is less than 10 times its 2024 earnings, offering significant upside if Hill successfully turns the business around.
The author uses Corebridge as an example to illustrate the market's intense focus on AI and its relative lack of interest in many other companies held by Oakmark.
The following are the average annual total returns (%) for the Oakmark Fund as of the third quarter of 2026:
| Category | QTD | YTD | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception¹ | Expense Ratio |
|---|---|---|---|---|---|---|---|---|
| Oakmark Fund | ||||||||
| Investor Class (OAKMX) | 3.45 | 3.37 | 8.30 | 15.61 | 10.20 | 13.08 | 12.67 | 0.89 |
| Advisor Class (OAYMX) | 3.49 | 3.49 | 8.48 | 15.82 | 10.41 | 13.26 | 12.73 | 0.70 |
| Institutional Class (OANMX) | 3.51 | 3.54 | 8.55 | 15.87 | 10.45 | 13.31 | 12.74 | 0.67 |
| R6 Class (OAZMX) | 3.52 | 3.58 | 8.60 | 15.93 | 10.50 | 13.34 | 12.75 | 0.61 |
| Benchmark Indices | ||||||||
| S&P 500 Index | 2.30 | 12.75 | 15.74 | 22.89 | 13.79 | 15.33 | 11.01 | - |
| Russell 1000 Value Index | 2.61 | 19.27 | 23.81 | 20.07 | 11.92 | 11.43 | 10.38 | - |
¹ Since inception returns are calculated based on the inception date of the Investor Class (August 5, 1991).