This quarter, the Oakmark Select Fund's Class I Shares demonstrated a mixed performance, trailing the S&P 500 Index for the three-month period but maintaining an overall lead since its establishment. The fund's strategy of identifying undervalued, high-quality businesses across diverse sectors remains central to its approach. Key sectors like communication services and energy boosted performance, while consumer staples and discretionary sectors acted as a drag. Despite its smaller allocation to the information technology sector and a preference for mid-cap firms, the fund continues to find promising investment prospects.
Detailed Report on Q3 2025 Performance and Portfolio Adjustments
In the third quarter of 2025, the Oakmark Select Fund (Class I Shares) experienced a period of underperformance relative to its benchmark, the S&P 500 Index. However, the fund has consistently outperformed the benchmark since its inception, showcasing its long-term investment efficacy. An analysis of sector-level contributions reveals that communication services and energy were significant positive drivers, while the consumer staples and consumer discretionary sectors faced headwinds, negatively impacting overall returns.
A notable event this quarter involved Warner Bros Discovery (WBD), which emerged as the top contributor. Its stock price soared by 29% in a single trading session in September, driven by rumors of a potential acquisition by Paramount-Skydance. Fund managers believe such a merger could unlock substantial cost synergies and establish a formidable competitor with an unparalleled content library. The long-term outlook for WBD remains favorable, supported by robust earnings, renewed distribution agreements, and momentum in its streaming division.
Conversely, Keurig Dr Pepper (KDP) was the primary detractor. Its stock declined following the announcement of its acquisition of JDE Peet's, a global coffee brand conglomerate. The subsequent plan to split Keurig Dr Pepper into two distinct entities—one for coffee and another for soft drinks—was met with investor apprehension. While the strategic rationale for separating these segments appears sound, with conservative synergy estimates and a reasonable valuation for JDE Peet's, the market reacted negatively to the increased complexity, higher debt levels, and unexpected exposure to the coffee market. Fund managers view this sell-off as an overreaction, confident in Keurig Dr Pepper's solid fundamentals, its history of effective deleveraging post-acquisition, and the potential for the upcoming separation to reveal a significant sum-of-the-parts discount.
During this period, there were no new acquisitions or final sales of positions within the fund, indicating a stable portfolio strategy focusing on existing holdings.
Reflections on Investment Strategy and Market Dynamics
This quarter's results underscore the inherent volatility and opportunities within the market. The performance of the Oakmark Select Fund highlights the importance of a discerning investment philosophy that prioritizes intrinsic value and long-term potential over short-term market fluctuations. While the allure of high-growth sectors like information technology is undeniable, the fund's commitment to undervalued, high-quality businesses across various industries demonstrates a belief in diversified, fundamental-driven investing. The reactions to corporate actions, such as mergers and acquisitions, also serve as a reminder that market sentiment can sometimes overlook sound strategic decisions, creating opportunities for value investors. This approach, centered on deep research and a patient outlook, remains crucial for navigating complex market environments and delivering sustained value for investors.