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The playbook never changes that much for Bill Nygren, co-manager of the Oakmark fund. Emphasizing fundamental research and patience, he looks for undervalued stocks that can overcome their discounts. (The fund’s annual turnover is 19%, versus an average of 61% for Morningstar’s large-cap blend category.) However, Nygren isn’t afraid to make a few tweaks. Following a big upswing in equity prices since the market bottomed in 2009, the Chicago-based manager is finding few attractive companies that sport a single-digit price-earnings multiple. So he has added some growthier names like Google (ticker: GOOGL), which doesn’t trade at a big premium to the Standard & Poor’s 500 index. Nygren, 56, who has co-managed the $17.8 billion fund with Kevin Grant since 2000, has compiled good long-term performance. Oakmark (OAKMX) has beaten the S&P 500 over three, five, and 10 years, and ranks in the top 10% of its Morningstar peer group over those periods. Barron’s spoke with Nygren recently by phone.
Regards,
Ted
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Comments
"Mutual fund turnover is calculated as the value of all transactions (buying, selling) divided by two, then divided by a fund's total holdings. In simpler terms, mutual fund turnover typically measures the replacement of holdings in a mutual fund, and is commonly presented to investors as a percentage over a one year period. If a fund has 100% turnover, the fund replaces all of its holdings over a 12-month period."
So turnover isn't just the selling out of holdings, but also the adding of holdings. Is it not plausible that a mutual fund that doubles its size (AUM) and then puts that new money to work by only adding shares (holdings) would have an annual "turnover ratio" of 50%? This scenario seem very positive and I color it green. OAKMX AUM hasn't double in size this year, but has seen almost a 50% increase ($12B to $17B):
Rummaging through OAKMX's M* data (which only list the top 25 stocks of a fund) I noticed that only one stock, (HD (Home Depot), has been held for at least 10 years. HD was first bought by OAKMX in 2002.
OAKMX holds 52 stocks (a fairly concentrated fund... see OAKLX if you want the Ultra - Nygren concentrated fund)
Of OAKMX's top 25 holdings listed on M*:
- Six are new as of this year
- Three more have been held for less than 2 years
- 14 stock have been held less 3 years or less
- 24 have been held less than ten years
- Nygren has increased shares to 23 of his funds top 25 holdings
Of these increases, Nygren made bigger bets on:
- Google by 24%
- Diageo by 20%
- AIG by 18%
- Qualcomm by 16%
- Saniflo, Apache, Mastercard, and Oracle by 12%
I guess my point is that even a fund with a mere 19% turnover can have an entirely different portfolio of stocks in any 5 year period (19% x 5 years). Conversely, mutual fund turnover ratio can be nothing more than a manager attracting more assets and putting that money to work by buying more shares of the same holdings.
I could be wrong, but much of Nygren's turnover this year seems to be attributed more to buying than selling (increasing the number of shares of holdings). His track record speaks for itself, but his recent share increases seems to speak optimistically of the holdings he presently holds. I color this manager's turnover ratio "green".
Another important note from Investopedia:
"The turnover rate in your mutual fund is really a measure of the frequency of transactions in your funds. In general, investors should analyze the turnover rate in conjunction with several considerations in determining whether or not to purchase a particular mutual fund. The fund turnover rate is not a silver bullet for your investment portfolio; it should be used as a complimentary decision-making tool. Other indicators, such as expense ratios, load/no-load, management tenure, investment philosophy and performance are (at least) as important as the turnover rate in helping you make the right investment decisions. "
Here are the holdings Nygren has added to: