4. Bill Nygren: Oakmark Fund and Natixis Trust II Oakmark Fund
The fund combines a
approaches with what its co-director Bill Nygren calls a private equity approach for companies that spend more for future growth. Both worked well in 2021.
Shares of IT services firm Gartner have doubled in value over the past 12 months, while the fund has also benefited from nearly 70% gains from oil and gas exploration company EOG Resources and around 60%. % each of the shares of Google’s parent company, Alphabet; financial services giant Charles Schwab; and the oil and gas company ConocoPhillips.
Managers Nygren, Michael Nicolas and Kevin Grant, who will retire at the end of 2021, invest primarily in large-cap US stocks. They place around two-thirds of their assets in areas such as financial services, industry, and consumer sectors that are relatively standard for value investing.
Financials were by far the largest component of the portfolio and accounted for 37% of its investments as of September 30, according to Morningstar.
“We’re looking at around seven years and trying to identify companies that will be worth a lot more in seven years than they are today, as investors focus on short-term issues,” Nygren told Insider.
The other third of their investments are less typical of the value style, said Nygren.
“There are more businesses today where customer acquisition, the global platform, research and development spending, advertising to build the brand, what we would call income statement investments, create a misleading price-to-earnings ratio, ”he said.
He said traditional accounting metrics don’t do justice to companies that spend a lot of money on research and development, like Alphabet, Meta Platforms or Regeneron Pharmaceuticals. These metrics are the foundation of most value investing approaches.
These companies are valued based on their future growth, resulting in high price-to-earnings ratios that investors typically don’t like. But he said these investments are worth it and can pay off tremendously.
So when they evaluate these companies, Nygren and the company cut out the large-scale venture capital spending that these companies make – Alphabet’s Waymo or Meta’s Oculus, for example – and evaluate their PE multiples without them.
This means they can find long term producers who are trading at reasonable valuations. Sometimes, he said, they buy the company’s core business for a fair price and get a future, potentially high-growth business for free.
Back since the beginning of the year: 30.5% (OAKMX), 30.3% (NEFOX)