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Oakmark Bond Fund – Institutional Class Common Annual Whole Returns 12/31/23 Since Inception 06/10/20 0.19% 1-year 6.90% 3-month 7.14% Gross Expense Ratio: 1.05% Internet Expense Ratio: 0.52% Expense ratios are from the Fund’s most up-to-date prospectus dated January 28, 2023; precise bills could differ. The Fund’s Adviser has contractually undertaken to waive and/or reimburse sure charges and bills in order that the entire annual working bills of every class are restricted to 0.74%, 0.54%, 0.52%, and 0.44% of common internet property, respectively. Every of those undertakings lasts till 1/27/2023 and will solely be modified by mutual settlement of the events. Previous efficiency is not any assure of future outcomes. The efficiency knowledge quoted represents previous efficiency. Present efficiency could also be decrease or greater than the efficiency knowledge quoted. The funding return and principal worth differ in order that an investor’s shares when redeemed could also be value kind of than the unique price. To acquire the newest month-end efficiency knowledge, view it right here. |
MARKET OUTLOOK POSITIONING
Positioning
In 2024, we are going to give attention to three key themes: credit score choice, persevering with our shift from traditionally overvalued asset lessons to those who underperformed final yr and stay undervalued, and monitoring how an financial slowdown may have an effect on default threat. The present “unfold,” the quantity of extra yield supplied by company bonds, continues to supply restricted enchantment for these looking for easy positive aspects within the historically liquid segments of fastened earnings.
Extra particularly, our technique for the approaching yr sounds so much just like the fourth quarter of 2023. It entails opportunistically transitioning from richer company credit score to securitized credit score, leveraged loans, and particular person corporates that didn’t totally profit from final yr’s narrowing spreads. The indexes nonetheless exhibit vital variation at each the asset class and subsector safety ranges. This range reinforces our dedication to a selective funding strategy, notably in high-quality leveraged loans, non-agency securitized merchandise, and sure areas inside the high-yield and investment-grade sectors. In these areas, there are alternatives for strategic de-leveraging, even towards a backdrop of a weakening macroeconomic atmosphere.
Final yr, we diminished our publicity to particular person company credit, favoring securitized property and high-quality length as an alternative. This yr, we are going to doubtless proceed this strategy if present market valuations maintain. We acknowledge that current inflation knowledge will increase the probability that the Fed can decrease rates of interest with out considerably disrupting the labor market, a state of affairs that might result in even tighter credit score spreads. Nevertheless, we’re additionally conscious that the economic system is predicted to proceed slowing within the first half of the yr, and we consider that the Fed is unlikely to satisfy pretty aggressive present market fee forecasts, both by way of timing or magnitude of cuts. Given the present valuations, we are going to proceed to establish particular person worth in our picks and make centered bets the place we see exceptions to the general richness on the benchmark stage.
Efficiency
In what might be characterised as a really perfect atmosphere for the Oakmark Bond Fund’s (MUTF:OAKCX) (“the Fund”) bottom-up centered, security-level portfolio building, the Fund’s safety choice and asset allocation selections drove efficiency and resulted in vital outperformance in comparison with the Fund’s benchmark in each the fourth quarter of 2023 and calendar yr 2023.
The Oakmark Bond Fund gained 7.14% within the fourth quarter of 2023, outperforming its benchmark, the Bloomberg U.S. Combination Index, by 32 foundation factors. For the calendar yr ended December 31, 2023, the Oakmark Bond Fund returned 6.90%, besting its benchmark by 137 foundation factors.
Fourth quarter 2023
Throughout the fourth quarter of 2023, yields declined considerably after the 10-year yield peaked round 5.00% in late October, and credit score spreads contracted meaningfully because the market recalibrated its odds for a Fed-induced recession. The Fund’s fourth-quarter outperformance was pushed by safety choice and asset allocation selections, though its barely shorter length profile than its benchmark was a slight headwind. Prudent safety choice contributed roughly 48 foundation factors to the Fund’s outperformance on this quarter as company credit score supplied vital extra returns and asset-backed safety (ABS) unfold tightened. The securities that contributed most importantly to this quarter’s safety choice had been Cushman & Wakefield (CWK) 6.75% Secured Notes due 5/15/2028, Apollo Industrial Actual Property (ARI) 4.625% Secured Notes due 6/15/2029, and Ally Monetary (ALLY) 4.7% Perpetual Most well-liked Bonds. In distinction, the FHLMC Multifamily Structured Cross By due 10/25/2036, Anglo American (OTCQX:AAUKF, OTCQX:NGLOY) 3.875% Senior Unsecured Notes due 3/16/2029, and the ArcelorMittal (MT, OTCPK:AMSYF) 6.55% Senior Unsecured Notes due 11/29/2027 had been the most important underperformers on a safety choice foundation.
Allocation selections contributed positively to fourth-quarter efficiency. The robust extra returns in each company credit score and structured securities had been captured by the Oakmark Bond Fund’s obese in each classes. These allocation selections had been the byproduct of our give attention to risk-adjusted returns of particular person securities throughout unfold merchandise, and the fourth quarter started with an inexpensive quantity of unfold dispersion between credit score asset lessons, sectors, and rankings high quality. The Fund maintains the next proportion of company debt and securitized debt in comparison with the Bloomberg U.S. Combination Bond Index at 41% versus 26% and 34% versus 28%, respectively. The Fund’s allocation selections accounted for about 39 foundation factors of outperformance versus the benchmark through the fourth quarter of 2023.
Whereas safety choice and allocation selections resulted in outperformance through the fourth quarter, the Fund’s modestly shorter common length relative to the benchmark was a headwind. The Fund prolonged its length as actual charges elevated within the latter a part of the second quarter and continued to take action early within the third quarter when yield elevated. The short and vital repricing of the yield curve in November and December induced long-duration property to generate extra returns. By the tip of the quarter, the Fund held an total length of roughly 5.9 years in distinction to the benchmark’s length of roughly 6.2 years.
Calendar 2023
The yr started with traditionally engaging company spreads, very engaging valuations for structured merchandise, and elevated fee volatility as a result of Fed’s tightening cycle. This atmosphere favored lively managers, together with the Oakmark Bond Fund’s bottom-up, research-driven technique. As with the fourth-quarter returns, full-year returns had been the results of safety choice and asset allocation. The Fund returned 6.90% for the yr and outperformed its benchmark by 1.37%.
Safety choice accounted for about 68 foundation factors of outperformance versus the benchmark as company credit score spreads and ABS unfold contracted, and our securities outperformed the broader market. The positions that contributed most importantly to optimistic safety choice had been the Carvana Auto Receivables Belief Sequence due 01/10/2029, the Southern Firm (SO) 3.75% Junior Subordinated Hybrids due 9/15/2051, and the Cushman & Wakefield 6.75% Secured Notes due 5/15/2028. Some positions lagged the benchmark, and that detracted from safety choice through the yr; these included SVB Monetary Group (OTCPK:SIVBQ) 4.25% Perpetual Most well-liked bond, Signature Financial institution (OTCPK:SBNY) New York 4.0% Subordinated bond due 10/15/2030, and SVB Monetary Group 4.0% Perpetual Most well-liked bond.
Asset allocation selections had been the most important driver of portfolio outperformance throughout 2023, accounting for about 139 foundation factors of outperformance. As talked about above, the Fund’s asset allocation is a byproduct of anticipated risk-adjusted returns for particular person securities, and in consequence, the Fund was obese in each company credit score and structured merchandise versus its benchmark.
The Fund’s length positioning versus its benchmark was a modest headwind for the calendar yr, detracting roughly 13 foundation factors of outperformance versus the Bloomberg U.S. Combination Bond Index. The Fund entered the yr with a length place that was meaningfully shorter than its benchmark and step by step adjusted that place to only wanting its benchmark by year-end. With each five-year and ten-year actual charges nonetheless engaging traditionally and Fed coverage normalizing, this near-neutral stance aligns effectively with the atmosphere as we enter 2024.
Join with us
We worth our relationship with our traders and welcome any questions or considerations. Please don’t hesitate to achieve out to our group. We maintain common investor calls and conferences the place you may work together with us and be taught extra about our methods and future plans. You can even e mail us at [email protected] or [email protected].
Adam D. Abbas, Portfolio Supervisor
M. Colin Hudson, CFA, Portfolio Supervisor
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The securities talked about above comprise the next preliminary percentages of the Oakmark Bond Fund’s whole internet property as of 12/31/2023: Ally Monetary 4.700% Due 08-15-69 0.6%, Anglo American CC 01/29 144A 3.875% Due 03-16-29 0.8%, Apollo Com CC 06/24 144A 4.625% Due 06-15-29 0.6%, ArcelorMittal CC 10/27 6.550% Due 11-29-27 0.9%, CRVNA 2023-P4 N 8.050% Due 10-10-30 0.1%, Cushman & Wake CC 07/23 144A 6.750% Due 05-15-28 0.9%, FHLMC Multifamily Structured Cross By due 10/25/2036 3.5%, Signature Financial institution New York 4.0% Subordinated bond due 10/15/2030 0%, Southern Firm 3.75% Junior Subordinated Hybrids due 9/15/2051 0.8%, SVB Monetary Group 4.0% Perpetual Most well-liked bond 0% and SVB Monetary Group 4.25% Perpetual Most well-liked bond 0%. Portfolio holdings are topic to alter with out discover and should not supposed as suggestions of particular person shares. Entry the complete record of holdings for the Oakmark Bond Fund as of the newest quarter-end. The data, knowledge, analyses, and opinions offered herein (together with present funding themes, the portfolio managers’ analysis and funding course of, and portfolio traits) are for informational functions solely and symbolize the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are topic to alter and will change based mostly on market and different circumstances and with out discover. This content material isn’t a suggestion of or a proposal to purchase or promote a safety and isn’t warranted to be appropriate, full, or correct. Sure feedback herein are based mostly on present expectations and are thought of “forward-looking statements.” These forward-looking statements replicate assumptions and analyses made by the portfolio managers and Harris Associates L.P. based mostly on their expertise and notion of historic developments, present circumstances, anticipated future developments, and different components they consider are related. Precise future outcomes are topic to numerous funding and different dangers and will show to be totally different from expectations. Readers are cautioned to not place undue reliance on the forward-looking statements. Yield is the annual fee of return of an funding paid in dividends or curiosity, expressed as a proportion. A snapshot of a fund’s curiosity and dividend earnings, yield is expressed as a proportion of a fund’s internet asset worth, relies on earnings earned over a sure time interval, and is annualized, or projected, for the approaching yr. Period is a measure of the sensitivity of the value of a bond or different debt instrument to a change in rates of interest. The Bloomberg U.S. Combination Bond Index is a broad-based benchmark that measures the funding grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index consists of Treasurys, government-related and company securities, mortgage-backed securities (company fixed-rate and hybrid ARM pass-throughs), asset-backed securities, and business mortgage-backed securities (company and non-agency). This index is unmanaged and traders can’t make investments instantly on this index. The Oakmark Bond Fund invests primarily in a diversified portfolio of bonds and different fixed-income securities. These embody, however should not restricted to, funding grade company bonds; U.S. or non-U.S.-government and government-related obligations (reminiscent of U.S. Treasury securities); under investment-grade company bonds; company mortgage-backed securities; business mortgage- and asset-backed securities; senior loans (reminiscent of leveraged loans, financial institution loans, covenant lite loans, and/or floating fee loans); assignments; restricted securities (e.g., Rule 144A securities); and different fastened and floating fee devices. The Fund could make investments as much as 20% of its property in fairness securities, reminiscent of frequent shares and most well-liked shares. The Fund may additionally maintain money or short-term debt securities sometimes and for short-term defensive functions. Beneath regular market circumstances, the Fund invests a minimum of 25% of its property in investment-grade fixed-income securities and will make investments as much as 35% of its property in under investment-grade fixed-income securities (generally generally known as “high-yield” or “junk bonds”). Mounted earnings dangers embody interest-rate and credit score threat. Sometimes, when rates of interest rise, there’s a corresponding decline in bond values. Credit score threat refers back to the chance that the bond issuer won’t be able to make principal and curiosity funds. Bond values fluctuate in value so the worth of your funding can go down relying on market circumstances. All data supplied is as of 12/31/2023 until in any other case specified. |
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Editor’s Word: The abstract bullets for this text had been chosen by Searching for Alpha editors.
