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Curiously, the advisor share class OAYMX of the Oakmark Fund OAKMX is available at Vanguard ($1,000 min), Fidelity ($2500 min), and TD Ameritrade ($100,000 min), but the advisor share class OAYCX of the Bond Fund is nowhere to be had.
FWIW, the advisor share class has a slightly lower ER. So for long term investors it may be worth paying the TF for this cheaper share class of Oakmark funds when available.
Remember this is for the advisor share class. The retail Investor share class for Oakmark tends to run about a dozen basis points higher.
See also the different share classes for Oakmark E&I (13 basis point difference), Oakmark Int'l (11 basis points), Oakmark Select (12 basis points), etc.
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
I held some of their funds for a short period of time. I decided they were too expensive, too dependent on the genius of too few people, and one of their geniusess over-committed to the Cubs.
EStud would know more, but I always inferred a general Midwestern love of Harris et alia, and more specifically a retro honoring (with lots of inertia) of Wisconsin financial grads (including Mairs & Powers, and some others), by way of Indiana and Oberlin and such, none of these Boston or West Coast snoot whippersnappers
I think @davidmoran is correct about biases at M*. Oakmark is a « homey » with both firms growing up in Chicago. M* still has a value bias that seems to affect their overrating of funds hewing to traditional value criteria. What other factor beside bias accounts for praising Nygren and Herro despite their lousy performance? Washington Mutual should have been Nygren’s Waterloo, but he’s still getting interviews. Same goes for Herro, who gets trooped out every time international markets start acting as though they won’t continue to deliver around 5% per annum, with unacceptable volatility. I used to own Oakmark funds, including Mr. S’s, but have not for many years.
Oh, I think M* is honestly data-driven but in general I meant from everyone, Midwestern luv luv luv, enough with these interviews w Tillinghast-Danoff-Romick, let's hear more from the Wisconsin PHC types. Like the long luv affair w GLRBX, near my hometown.
+1 Ben I sold OAKBX after its terrible 3Q 2011 performance: lost 12.8% compared to VFIAX loss of 13.9, during debt hostage negotiations ! Too many good choices in the 50-70% allocation segment to keep holding this laggard.
Remember this is for the advisor share class. The retail Investor share class for Oakmark tends to run about a dozen basis points higher.
See also the different share classes for Oakmark E&I (13 basis point difference), Oakmark Int'l (11 basis points), Oakmark Select (12 basis points), etc.
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
M* "likes" them because they advertise on the platform, not because they truly have conviction.
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
M* "likes" them because they advertise on the platform, not because they truly have conviction.
Clearly my question was not understood. Oakmark used to be a fine fund company. For example, OAKBX was a five star fund in 2010.
Oakmark Equity & Income (OAKBX) is another popular moderate-allocation offering that looks especially good these days. This fund grew from less than $60 million in assets at the end of 1999 up to roughly $7 billion in late April 2004, as it crushed its peers during each of the first four years of this decade.
Recent (and not so recent) history suggests things have changed. M* does not perceive a change in most of Oakmark's funds (it still thinks highly of the people/process). Do you perceive any changes, and if so, what?
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
M* "likes" them because they advertise on the platform, not because they truly have conviction.
Clearly my question was not understood. Oakmark used to be a fine fund company. For example, OAKBX was a five star fund in 2010.
Oakmark Equity & Income (OAKBX) is another popular moderate-allocation offering that looks especially good these days. This fund grew from less than $60 million in assets at the end of 1999 up to roughly $7 billion in late April 2004, as it crushed its peers during each of the first four years of this decade.
Recent (and not so recent) history suggests things have changed. M* does not perceive a change in most of Oakmark's funds (it still thinks highly of the people/process). Do you perceive any changes, and if so, what?
I don't think your question was misunderstood at all. Note, the star rating is simply an objective risk/return metric. Regarding the lack of change to the Gold/Silver/Bronze rankings which are indicative of M*'s perspective on the platform, I'm simply highlighting that M* has a bias to not alter those rating because they serve as a source of revenue to them (i.e. they would never admit it, but M* is bias and influenced by factors other than conviction).
Since it's my question and I was asking what changed at Oakmark while you commented and continue to comment on M*'s analyst (prospective) ratings, you are not addressing my question. Oakmark used to have 4-5* funds; they're now all 1-2*. As you wrote yourself, those are objective ratings. The question, again, is what changed at Oakmark to explain this objective decline?
I'll grant you that you did understand the question but chose to use it as an opportunity to criticize M* (an easy task) rather than answer the question. I had been trying to be more diplomatic.
I can only speak to OAKBX which I owned for a decade or longer before bailing late in 2018. As to “EdStud” (referenced above), Ed Studzinski did address the dire situation at his old fund (OAKBX) in a recent MFO Commentary. For some reason I’m unable to bring up any except the December issue, but I think it was in the November issue - or possibly October. Ed was magnanimous in addressing the fund’s stumble since leaving as pertains current manager Clyde McGregor. Something along the lines of Miller’s “Nobody dast blame this man”.
Memory is a funny thing ... - But I believe Ed attributed the problems more to (1) value being long out of favor, (2) bond rates being too low and (3) competition from extremely low-fee index funds which compete against moderate-fee OAKBX. (Hopefully I got 2 out of 3 correct.)
My own perceptions:
- OAKBX (more than other balanced funds) hedged their equity risk with AAA rated (government bonds). Some had rather long duration. I never understood how they pulled it off, but for many years it worked for them. So when “the band stopped playing” (so to speak) and rates in AAA debt plunged to near 0, that hedging strategy ceased to work.
- OAKBX also hedged successfully in the energy sector, particularly with small drillers. So the depressed prices and upheaval in how oil is extracted had to hurt their strategy.
- Around the time I exited (late 2018) I noticed that OAKBX had begun mirroring (resembling) the performance of the major indexes on big “up” and “down” days. For a defensive fund, that’s not a welcome characteristic. That’s what drove me to get out. I tried unsuccessfully to prove my case that it had become a closet indexer and posted those thoughts here, but without success. The fund’s largest holdings did not correspond with those of the S&P. I remain convinced, however, that they had begun taking on more risk with OAKBX back than in an effort to compensate for the fund’s poor performance.
- Like all value funds OAKBX has suffered from value being out of favor.
- Likely, a lot of money has hit the exits (I believe Ed referenced the drawdown) and money flowing out generally hamstrings a manager. Conversely, money flowing in during strong markets generally helps a fund - though only in the near term.
Just some rambling thoughts. But, Ed’s comments were appreciated by me and definitely worth reading if you missed them.
Your memory is perfect, right month, and 3/3 on his reasons. (More on that below.) I appreciate your additional thoughts about the quality of bonds used (Ed also commented on this in his column, saying that one can't add value without adding excessive risk). Interesting observation about using the energy sector.
Value vs. growth does seem to be a major factor. I looked at all 50%-70% allocation funds at M*. Of the 40 distinct funds with value portfolios, the number in the top half over the past five or three years can be counted on two hands. Of the 38 with star ratings, just 5 manage even four stars, with more having two stars than three. The four star fund people will recognize is BRUFX.
Cost would seem to be a smaller factor, though it could be why DODBX retains three stars. The difficulty in finding value in bonds helps explain poor absolute performance of balanced funds, but it doesn't help explain relatively poor performance. All of OAKBX's peers face this same problem.
Apparently value vs. growth has more of an impact on funds in this category than I suspected.
Laziness is not a virtue. - I’ve now taken the effort to Google the referenced column (November 2020 Mutual Fund Observer). I think in fairness to Ed I should post his exact words:
“ When I left Harris Associates in January of 2012, the Oakmark Equity and Income Fund had, on 12/31/2011, $18.9B in assets. Performance over the long-term had been above the relevant benchmarks. As of 10/31/2020, per Morningstar, the fund’s assets are at $7.2B, and performance has been lagging benchmarks for the last 1, 3, and 5 years.
What is the problem? Has my former colleague Clyde McGregor lost his touch? No, certainly not that I can see. The equity portion of the portfolio is a classic Harris Associates’ value portfolio, and it looks very interesting to me looking forward over a three to five-year time horizon.
There are two areas of issue. Please recognize that I am speaking about balanced funds, which is the class of investment I am most familiar with, having managed the same for more than twenty-five years at a national bank trust department as well as at Harris Associates. The first competitive issue is fees. When Fidelity’s Balanced Fund shows a 53-basis point expense ratio and Vanguard’s Wellington Fund shows a 25-basis point expense ratio (and the Vanguard Admiral share class drops that fee to 17 basis points). A 25 to 35 basis point fee disadvantage is a lot of baggage to overcome consistently in terms of its detrimental impact upon performance. If the fee disparity is larger, making up the differential becomes nigh on impossible. I will leave it to others to address the issue of the fee disadvantages relative to exchange traded funds.
The other area of disadvantage currently is fixed income as an asset class for a balanced portfolio. With rates where they are and where they are likely to be for the foreseeable future, it is almost impossible to add any value in the fixed income area without taking on extreme amounts of risk. Money market rates, when not negative, are running from zero to perhaps eight basis points. Maturities beyond two years are not compensating you for the risk you are taking on (if you are lucky, you can find 1% on a credit union’s three-year insured certificate of deposit).
I will leave aside the issue of value being out of favor as opposed to growth. Those of us who are value investors are prepared to wait through those periods of underperformance. That said, the goalposts for various asset classes have shifted. Small cap was equities with a market capitalization of $500M to $1B. Now, the range is extended up to $2.5B. And one must consider the extent to which other asset classes impinge on your allocation decisions. An article on the “Seeking Alpha” website was making an argument not too long ago that the better way to achieve portfolio diversification going forward was to pair an S&P 500 Index Fund with one of the publicly-traded C-Corporation private equity firms. It is an interesting question to think about.”
“The difficulty in finding value in bonds helps explain poor absolute performance of balanced funds, but it doesn't help explain relatively poor performance. All of OAKBX's peers face this same problem.”
Yes and No. Not all bonds are equal. I’m aware of no other balanced fund that relied(ies) so heavily on upper tier and longer dated bonds as OAKBX during its hey-day.. It doesn’t take a big commitment to AAA bonds with 15 or 20 year durations to pack a lot of hedging power - if you get it right. I’d argue that that’s a riskier proposition than hedging with short-term junk bonds - just by way of example. During the time I was with OAKBX management sounded distrustful of the junk and lower rated bond sector. They did begin to exit the AAA stuff - but in so doing weakened or discarded the method of hedging against equity losses they knew best.
DODBX, from what I can tell, utilizes the same components as their relatively tame DODIX (income fund) for its “bond” portion. That’s a much more docile approach to bonds. Yeah - I’m disappointed in my DODBX holding. But, unlike Oakmark I think, D & C has stuck to its stated and time-proven philosophy. Unfortunately, they were early (by years) in predicting the uptick in long-term rates which now appears to have begun. Their big stake in financials has now started to pay off (and the fund’s recent performance shows some improvement.) So, I’m comfortable continuing to hold DODBX.
Final thought - As a group balanced funds are a very unbalanced lot.
There are many wise and thoughtful contributions from several of the varsity team here on MFO. When I held one of the Fidelity Asset Manager funds way back when, then OAKBX, and then BRUFX, I believed (probably naïvely) that what I had were "all-weather" funds. The past few years have demonstrated that allocation funds work great when markets are "behaving" as they usually have. Interest rates and rates of inflation rose and fell with a certain regularity. Value stocks and growth stocks alternated with being the flavor of the year or two, but there was an alternation. Nowadays, interest rates remain far below historical levels and value securities can't find even hold-the-nose buyers. My thought is that the weather has changed so drastically that it's pointless to expect a balanced fund to thrive in this climate.
While I hold PTIAX and TMSRX in my taxable portfolio, what I expect from them is not that their managers hedge their stock holdings as a balanced fund manager might do, but that they will provide a steady stream of income or capital appreciation that does not depend on the performance of my stocks and equity funds. I have a small slice of RPGAX, but no other allocation fund in my taxable portfolio. As for my TIAA retirement account, I let Vanguard's retirement target fund managers decide what bonds to buy. The only decision I make is on the year (2025, 2030, etc.). Those mixed asset funds-of-funds represent approximately 40% of the portfolio, which is tilted farther towards equities than most 78-year-olds can tolerate. Not advice, just observations.
@BenWP : Thank you for your thoughts. My thought process says, everything works until it doesn't ! You mention value funds above. I happen to purchase small, medium, & LCV in equal amounts two or three weeks back. SCV seems to be working , better than 5% appreciation since purchase. I also own some TDF's , but not to the extent you do. I may add to 2015 or TDR fund to raise bond allocation. I hope Mr. Market doesn't have another (Dot Com ) per say blow out coming as many virtual company have popped up. Making money & burning through it are two different things !
As I've said before , different strokes for different folks.
@derf: thanks for your ideas. In my Roth, which I manage, I recently added CSB, a SCV etf. If truth be known, I’m looking for a pop in the price and not really a long/term commitment to the asset class.
I own Oakmark funds, both in taxable and Roth accounts. Have long been a fan of the firm and their process, and more concentrated portfolios.
OAKBX appears to have really lagged a surprising number of "usual suspect" actively managed funds over a moderate time period. At one time I thought OAKBX would be one of the folds I'd hold until well into retirement; maybe I still will, but I have reduced my position there substantially.
I have posted here how OAKEX (which I also used to hold both in Roth and taxable) has really been lackluster vis-a-vis any other number of actively-managed competitors. I haven't held it for ages and doubt I will return.
I still hold OAKIX. I have held OAKGX in taxable and non-taxable, and may do so again.
There's not a lot of active managers who wow me at the moment; I try to be reasonable on timelines, because a value mindset has kept me in markets when others I know have panicked. I look harder now at indexing than I did years ago, but I haven't fully drank that Kool-Aid yet.
I owned OAKBX for about 10 years in my IRA, and it generally performed better than average. I sold it several years ago because it was changing in ways that didn’t suit my purposes. It started holding higher percentages in stacks, its volatility increased, and its bond sleeve seemed to underperform. It no longer had the excellent downside performance that attracted me in the first place. I replaced it by increasing stakes in funds I already owned — FBALX, PRBLX, TWEIX— that had good downside performances. I also added money to good performing bond funds to achieve a comparable stock/bond allocation.
I am hearing again of late from multiple credible voice of reason sources reminding us something to the effect ... "we must buy fixed income even tho the space stinks". This is not necessarily new news. However, when you reach the tipping point when everyone accepts the irrational as rational, then the potential for market dislocation intensifies. Fixed income is a huge market.
I appreciate all the comments and observations about how OAKBX has altered its portfolio (both in allocation and in types of bonds) over the past several years. This seems to be in response to the changing fixed income market (interest rates low and presumably bottoming out though not rising).
Interestingly, OAKBX is the only Oakmark fund that M* does not like (rated neutral). So while M* does not see significant changes happening on the equity side, somethings must have changed to cause the equity funds to degrade so much.
(M* still loves long time managers Nygren at 2*, gold-rated, OAKMX; Herro at 2% gold-rated OAKIX and 1* bronze-rated OAKEX; McGregor at 2*, silver-rated OAKGX.)
Comments
https://www.sec.gov/Archives/edgar/data/872323/000110465920111005/tm2031542-1_485apos.htm
M* purchase page for OAYCX
M* purchase page for OAYMX
FWIW, the advisor share class has a slightly lower ER. So for long term investors it may be worth paying the TF for this cheaper share class of Oakmark funds when available.
See also the different share classes for Oakmark E&I (13 basis point difference), Oakmark Int'l (11 basis points), Oakmark Select (12 basis points), etc.
Side note: what happened to Oakmark? Not a single fund rated higher than 2 stars. Though M* still loves the company, giving most of its funds gold or sliver prospective (forward looking) analyst ratings.
Recent (and not so recent) history suggests things have changed. M* does not perceive a change in most of Oakmark's funds (it still thinks highly of the people/process). Do you perceive any changes, and if so, what?
I'll grant you that you did understand the question but chose to use it as an opportunity to criticize M* (an easy task) rather than answer the question. I had been trying to be more diplomatic.
Memory is a funny thing ...
My own perceptions:
- OAKBX (more than other balanced funds) hedged their equity risk with AAA rated (government bonds). Some had rather long duration. I never understood how they pulled it off, but for many years it worked for them. So when “the band stopped playing” (so to speak) and rates in AAA debt plunged to near 0, that hedging strategy ceased to work.
- OAKBX also hedged successfully in the energy sector, particularly with small drillers. So the depressed prices and upheaval in how oil is extracted had to hurt their strategy.
- Around the time I exited (late 2018) I noticed that OAKBX had begun mirroring (resembling) the performance of the major indexes on big “up” and “down” days. For a defensive fund, that’s not a welcome characteristic. That’s what drove me to get out. I tried unsuccessfully to prove my case that it had become a closet indexer and posted those thoughts here, but without success. The fund’s largest holdings did not correspond with those of the S&P. I remain convinced, however, that they had begun taking on more risk with OAKBX back than in an effort to compensate for the fund’s poor performance.
- Like all value funds OAKBX has suffered from value being out of favor.
- Likely, a lot of money has hit the exits (I believe Ed referenced the drawdown) and money flowing out generally hamstrings a manager. Conversely, money flowing in during strong markets generally helps a fund - though only in the near term.
Just some rambling thoughts. But, Ed’s comments were appreciated by me and definitely worth reading if you missed them.
https://www.mutualfundobserver.com/2020/11/the-end-of-many-eras/
Your memory is perfect, right month, and 3/3 on his reasons. (More on that below.) I appreciate your additional thoughts about the quality of bonds used (Ed also commented on this in his column, saying that one can't add value without adding excessive risk). Interesting observation about using the energy sector.
Value vs. growth does seem to be a major factor. I looked at all 50%-70% allocation funds at M*. Of the 40 distinct funds with value portfolios, the number in the top half over the past five or three years can be counted on two hands. Of the 38 with star ratings, just 5 manage even four stars, with more having two stars than three. The four star fund people will recognize is BRUFX.
Cost would seem to be a smaller factor, though it could be why DODBX retains three stars. The difficulty in finding value in bonds helps explain poor absolute performance of balanced funds, but it doesn't help explain relatively poor performance. All of OAKBX's peers face this same problem.
Apparently value vs. growth has more of an impact on funds in this category than I suspected.
“ When I left Harris Associates in January of 2012, the Oakmark Equity and Income Fund had, on 12/31/2011, $18.9B in assets. Performance over the long-term had been above the relevant benchmarks. As of 10/31/2020, per Morningstar, the fund’s assets are at $7.2B, and performance has been lagging benchmarks for the last 1, 3, and 5 years.
What is the problem? Has my former colleague Clyde McGregor lost his touch? No, certainly not that I can see. The equity portion of the portfolio is a classic Harris Associates’ value portfolio, and it looks very interesting to me looking forward over a three to five-year time horizon.
There are two areas of issue. Please recognize that I am speaking about balanced funds, which is the class of investment I am most familiar with, having managed the same for more than twenty-five years at a national bank trust department as well as at Harris Associates. The first competitive issue is fees. When Fidelity’s Balanced Fund shows a 53-basis point expense ratio and Vanguard’s Wellington Fund shows a 25-basis point expense ratio (and the Vanguard Admiral share class drops that fee to 17 basis points). A 25 to 35 basis point fee disadvantage is a lot of baggage to overcome consistently in terms of its detrimental impact upon performance. If the fee disparity is larger, making up the differential becomes nigh on impossible. I will leave it to others to address the issue of the fee disadvantages relative to exchange traded funds.
The other area of disadvantage currently is fixed income as an asset class for a balanced portfolio. With rates where they are and where they are likely to be for the foreseeable future, it is almost impossible to add any value in the fixed income area without taking on extreme amounts of risk. Money market rates, when not negative, are running from zero to perhaps eight basis points. Maturities beyond two years are not compensating you for the risk you are taking on (if you are lucky, you can find 1% on a credit union’s three-year insured certificate of deposit).
I will leave aside the issue of value being out of favor as opposed to growth. Those of us who are value investors are prepared to wait through those periods of underperformance. That said, the goalposts for various asset classes have shifted. Small cap was equities with a market capitalization of $500M to $1B. Now, the range is extended up to $2.5B. And one must consider the extent to which other asset classes impinge on your allocation decisions. An article on the “Seeking Alpha” website was making an argument not too long ago that the better way to achieve portfolio diversification going forward was to pair an S&P 500 Index Fund with one of the publicly-traded C-Corporation private equity firms. It is an interesting question to think about.”
The End of Many Eras
Yes and No. Not all bonds are equal. I’m aware of no other balanced fund that relied(ies) so heavily on upper tier and longer dated bonds as OAKBX during its hey-day.. It doesn’t take a big commitment to AAA bonds with 15 or 20 year durations to pack a lot of hedging power - if you get it right. I’d argue that that’s a riskier proposition than hedging with short-term junk bonds - just by way of example. During the time I was with OAKBX management sounded distrustful of the junk and lower rated bond sector. They did begin to exit the AAA stuff - but in so doing weakened or discarded the method of hedging against equity losses they knew best.
DODBX, from what I can tell, utilizes the same components as their relatively tame DODIX (income fund) for its “bond” portion. That’s a much more docile approach to bonds. Yeah - I’m disappointed in my DODBX holding. But, unlike Oakmark I think, D & C has stuck to its stated and time-proven philosophy. Unfortunately, they were early (by years) in predicting the uptick in long-term rates which now appears to have begun. Their big stake in financials has now started to pay off (and the fund’s recent performance shows some improvement.) So, I’m comfortable continuing to hold DODBX.
Final thought - As a group balanced funds are a very unbalanced lot.
While I hold PTIAX and TMSRX in my taxable portfolio, what I expect from them is not that their managers hedge their stock holdings as a balanced fund manager might do, but that they will provide a steady stream of income or capital appreciation that does not depend on the performance of my stocks and equity funds. I have a small slice of RPGAX, but no other allocation fund in my taxable portfolio. As for my TIAA retirement account, I let Vanguard's retirement target fund managers decide what bonds to buy. The only decision I make is on the year (2025, 2030, etc.). Those mixed asset funds-of-funds represent approximately 40% of the portfolio, which is tilted farther towards equities than most 78-year-olds can tolerate. Not advice, just observations.
My thought process says, everything works until it doesn't !
You mention value funds above. I happen to purchase small, medium, & LCV in equal amounts two or three weeks back. SCV seems to be working , better than 5% appreciation since purchase. I also own some TDF's , but not to the extent you do. I may add to 2015 or TDR fund to raise bond allocation. I hope Mr. Market doesn't have another (Dot Com ) per say blow out coming as many virtual company have popped up. Making money & burning through it are two different things !
As I've said before , different strokes for different folks.
Stay Safe, Derf
OAKBX appears to have really lagged a surprising number of "usual suspect" actively managed funds over a moderate time period. At one time I thought OAKBX would be one of the folds I'd hold until well into retirement; maybe I still will, but I have reduced my position there substantially.
I have posted here how OAKEX (which I also used to hold both in Roth and taxable) has really been lackluster vis-a-vis any other number of actively-managed competitors. I haven't held it for ages and doubt I will return.
I still hold OAKIX. I have held OAKGX in taxable and non-taxable, and may do so again.
There's not a lot of active managers who wow me at the moment; I try to be reasonable on timelines, because a value mindset has kept me in markets when others I know have panicked. I look harder now at indexing than I did years ago, but I haven't fully drank that Kool-Aid yet.
Interestingly, OAKBX is the only Oakmark fund that M* does not like (rated neutral). So while M* does not see significant changes happening on the equity side, somethings must have changed to cause the equity funds to degrade so much.
(M* still loves long time managers Nygren at 2*, gold-rated, OAKMX; Herro at 2% gold-rated OAKIX and 1* bronze-rated OAKEX; McGregor at 2*, silver-rated OAKGX.)
https://oakmark.com/news-insights/harris-associates-launches-oakmark-bond-fund/