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Destripando el Oakmark Global

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Destripando el Oakmark Global
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#65

Re: Carta de Bill Nygren

Manucr
Interesante fondo extranjero, lo voy a mirar, nunca más fondos nacionales después del desastre que nos han causado!!
#66

¿Qué pasará con los bancos europeos? Caso de análisis de Oakmark

Es interesante ver como analizan los bancos europeos Oarkmark en un reciente artículo: 

 
The outlook for the European banks owned in the Oakmark International Fund has moderated given the impact of the coronavirus to the global economy. While we are not experts at the coronavirus, we have a deep investment team who is experienced and practiced at valuing businesses. This disciplined approach helps us identify opportunities during times of crisis and increased volatility. We continue to believe we are positioned in the strongest banks in the sector, including BNP Paribas, Credit Suisse Group, Intesa Sanpaolo, Lloyds Banking Group and Royal bank of Scotland (RBS), given they are well capitalized with high profitability buffers. 
Impact to intrinsic value

 We are constantly stress testing our assumptions to determine the interest rate and economic sensitivity of our banks. To incorporate slower economic growth and reduced central bank interest rates, we are making three key adjustments: 

  1. Reducing base interest rates
  2. Lowering loan growth
  3. Increasing credit costs

Interest rates

We believe the coronavirus will impact interim cash flows as governments take austerity measures and expect the lower base rates to persist for FY 2020 and for the first half of FY 2021. Our base case scenario is that rates remain lower for the next two years with an eventual return to pre-coronavirus normalcy in 2022. As a result of lower interest rates for potentially the next two years, we have brought down fair values by a few percentage points. In a lower for longer scenario, where these recently lowered rates persist for the next five years, our intrinsic value estimates would be reduced by mid-single digits. European banks have been operating in an environment with negative interest rates for some time now.

Actions taken by our banks have produced positive returns as a result of adeptly reducing costs, investing in digital and repositioning their asset mix toward superior quality. For example, we’ve invested with CEO Antonio Horta-Osorio since his days at Banco Santander. We initiated a position in Lloyds, the U.K. leader in consumer banking, in December 2011 after his arrival because of Horta-Osorio’s strong operational and capital allocation track record. Under his leadership, Lloyds has improved their net interest margin to 3%, twice the level of the average European bank. If interest rates were to remain flat from the recently reduced levels over the next five years, our interim profitability and capital generation assumptions would need to be reduced and we estimate that this could be a 2-9% headwind to our projected fair values. Keep in mind that assumes no offsetting measures taken by management, including cost reduction measures, growing fee-based businesses and a rationalization of marginal competitors, a scenario we see as unlikely. Asset quality

We do not see a big asset quality issue at the European banks. Given tighter underwriting standards, uncertainty surrounding Brexit and slow European growth heading into this disruption, we do not have residential or commercial real estate bubbles that need correcting, unlike heading into the global financial crisis. Governments across Europe are being very proactive in supporting small- and medium-sized enterprises and industries that are more exposed to the coronavirus, such as airlines and hotels.

Going forward, we do assume increases in non-performing loans (NPLs) and bankruptcies of corporate clients of the European banks. Overall, we are modeling an increase in NPLs of 20% in FY2020 and 10% in FY2021 but we note that increases are on a very low base (i.e., RBS’s NPL is at only 1.2%). Because we believe our bank holdings have strong loan books and good exposure to mortgages (which will be supported by governments), we do not believe these short-term adjustments will be material to our valuations.


 
Credit costs 
As is typical when an economic cycle ends, we are now modeling in an increase in the cost of credit over the next two years. 
Figure 2: Credit cost scenario analysis



Importantly, we believe European banks remain better positioned now than during the global financial crisis in the context of materially higher liquidity buffers and higher capital.

Liquidity
The European Central Bank (ECB) is taking steps to ensure liquidity. The ECB reintroduced LTRO, a cheap loan scheme that was first used in 2011, with the aim to eliminate potential Euro liquidity strains. In the first LTRO auction this week, €109 billion was taken up by 110 banks. We believe this will be an effective back-stop for banks as funding conditions worsen. We are monitoring three month Libor – OIS spreads. While they have widened in the past week, they remain well off the global financial crisis highs.

 
Importantly, we believe European banks remain better positioned now than during the global financial crisis in the context of materially higher liquidity buffers and higher capital. 
Liquidity
 The European Central Bank (ECB) is taking steps to ensure liquidity. The ECB reintroduced LTRO, a cheap loan scheme that was first used in 2011, with the aim to eliminate potential Euro liquidity strains. In the first LTRO auction this week, €109 billion was taken up by 110 banks. We believe this will be an effective back-stop for banks as funding conditions worsen. We are monitoring three month Libor – OIS spreads. While they have widened in the past week, they remain well off the global financial crisis highs.
Figure 3: 3 Month USD LIBOR –OIS Spread


 
Capital
When banks entered the global financial crisis, they were unprepared for the situation as their capital positions were roughly 6-7% as measured by the Core Tier 1 Capital Ratio (CET1). Today, they have doubled this amount of capital to levels around 12-14% from both capital increases and deleveraging. Not only is capital higher but it is on a higher risk weighted asset base as the risk weighting has increased since 2007. 
While regulations and rules stiffened over the last decade, central banks in Europe and the United Kingdom are now reducing these counter cyclical buffers to help support the economy. The Bank of England (BOE) recently announced reduced capital requirements for both RBS and Lloyds, leaving them both way over-capitalized.


Figure 4: European Banks Core Tier 1 Capital Ratio


Given the spread of the virus within Italy, it appears Intesa will be the most impacted by this as it stands now. However, Intesa has the highest buffer to its required capital at ~460 bps, positioning the company to handle potential spikes in credit costs.
Widening value gap
As is often the case, share prices of our banks have fallen by approximately 35% over the last month. We believe a value gap is widening. When this occurs, you can expect us to purchase the names with the most upside to intrinsic value, essentially de-risking our portfolio.

Figure 6: Oakmark International Financial holdings valuation update

When the uncertainty starts to wane in time, we believe the European financials can provide strong total returns for our shareholders. Thank you for your continued confidence and patience.
#67

Carta de Bill Nygren 1T

Aquí la carta de Bill Nygren
Halfway through the quarter, the stock market seemed poised to continue its strong 2019 performance, though at a somewhat muted rate of increase. The S&P 500 was up 3% and the Oakmark Fund hit a new all-time high NAV on February 12, even though growth stocks still dominated over value. We had little portfolio turnover as most of our holdings were selling at prices between our established buy and sell targets. Then, the bottom fell out. From February 20 through March 23, the S&P 500 declined 34%, the fastest drop of that magnitude in history.
At Oakmark, we are long-term investors. We attempt to identify growing businesses that are managed to benefit their shareholders. We will purchase stock in those businesses only when priced substantially below our estimate of intrinsic value. After purchase, we patiently wait for the gap between stock price and intrinsic value to close.
The expected downturn in GDP, which many thought was overdue, will not occur because of excesses in the economy, but because of a voluntary shutdown to avoid a worst-case death toll from the coronavirus pandemic, COVID-19. A new vocabulary quickly emerged, including terms like “flatten the curve,” “social distancing” and “shelter in place.” Epidemiologists became TV stars, tourism stopped on a dime, schools were closed, workers were told to stay home, the oil market collapsed, corporate bond spreads exploded and investors grew more worried about the banking system than they had been since 2008. Our Funds performed poorly in both absolute and relative terms as the companies we thought were cheapest before the decline tended to be those that were viewed as benefitting the most from a continued strong economy.
We were unusually active in the second half of the quarter. We believe that extreme market volatility allowed us to increase the fundamental attractiveness of our portfolio. We were able to buy stocks in companies we believed offered greater undervaluation, higher quality or stronger balance sheets (and, in some cases, offered all three) than the companies we were selling. When markets make such extreme moves, desperate investors who need cash have to sell, and those with cash are able to buy— in contrast to normal conditions when trades tend to occur because investors have different time horizons or opinions on a stock’s long-term value. In the past quarter, we often purchased from desperate sellers, using assets from our cash reserves or from selling off some of our holdings that had performed relatively well. To highlight the opportunities available: typically, we at Oakmark buy stocks priced at less than 60% of our estimate of business value and sell them when their price exceeds 90% of that value. During the past few weeks, we were selling stocks priced at 60% or more of our estimate of business value and buying companies priced at less than 40%. To us, these are incredibly compelling opportunities.
Amidst this turmoil, the financial media has been full of speculation as to whether or not the stock market bottom has been reached. We don’t believe anyone knows and we know that we don’t know either. Earlier this month, we wrote a note reminding Oakmark shareholders that we don’t consider market timing to be a skill of ours, so instead we consistently encourage portfolio rebalancing. Today, that likely means selling assets that have performed well, like Treasury bonds, and using the proceeds to buy assets that have underperformed, like stocks. That restores the portfolio balance that existed prior to the stock market’s downturn. In our personal accounts, most of the Oakmark portfolio managers bought more of the Oakmark Funds to rebalance our own investments.
As we look to the new quarter, we anticipate that our trading activity will remain at an elevated level as we continue to adjust to changing stock prices and capture the tax losses created by the downturn. We will also look even more closely at the management teams running our companies. We only invest in those companies that we believe are being managed to maximize long-term business value per share. We will evaluate what our companies accomplish during this downturn and revise our management quality ratings accordingly.
When we look back to 2008, some companies completed strategic acquisitions that were only possible because of the financial crisis: Wells Fargo purchased Wachovia, Liberty Media bought Sirius XM, Comcast bought NBC Universal and Berkshire Hathaway bought Burlington Northern. In hindsight, each of these added significantly to the acquirer’s per share value. Other companies, such as Netflix, took advantage of their own depressed share price to reduce the number of shares outstanding, increasing each remaining share’s percentage ownership. From late 2007 through 2010, Netflix repurchased 27% of its outstanding shares at an average price of $6 per share. Netflix today is priced at $372 per share, more than 60 times the repurchase price. We have no doubt that many of our companies will be looking for the value-enhancing opportunities created by this economic downturn.
On a final note, I want to express my thanks to the Harris Associates IT team. We’ve never been a work-from-home firm, believing that the corporate culture we so jealously guard would be eroded without the shared experience of being in the office together. Despite that, to protect our employees and our investors, we went to a work-from-home mandate a week before the city of Chicago did. It was no small task to make sure that all of our 200 employees could seamlessly communicate with each other, that our many data feeds were fully accessible and that we could execute the increased trading volume that we expected in a high volatility environment. It went off without a hitch.
Halfway through the quarter, the stock market seemed poised to continue its strong 2019 performance, though at a somewhat muted rate of increase. The S&P 500 was up 3% and the Oakmark Fund hit a new all-time high NAV on February 12, even though growth stocks still dominated over value. We had little portfolio turnover as most of our holdings were selling at prices between our established buy and sell targets. Then, the bottom fell out. From February 20 through March 23, the S&P 500 declined 34%, the fastest drop of that magnitude in history.
At Oakmark, we are long-term investors. We attempt to identify growing businesses that are managed to benefit their shareholders. We will purchase stock in those businesses only when priced substantially below our estimate of intrinsic value. After purchase, we patiently wait for the gap between stock price and intrinsic value to close.
The expected downturn in GDP, which many thought was overdue, will not occur because of excesses in the economy, but because of a voluntary shutdown to avoid a worst-case death toll from the coronavirus pandemic, COVID-19. A new vocabulary quickly emerged, including terms like “flatten the curve,” “social distancing” and “shelter in place.” Epidemiologists became TV stars, tourism stopped on a dime, schools were closed, workers were told to stay home, the oil market collapsed, corporate bond spreads exploded and investors grew more worried about the banking system than they had been since 2008. Our Funds performed poorly in both absolute and relative terms as the companies we thought were cheapest before the decline tended to be those that were viewed as benefitting the most from a continued strong economy.
We were unusually active in the second half of the quarter. We believe that extreme market volatility allowed us to increase the fundamental attractiveness of our portfolio. We were able to buy stocks in companies we believed offered greater undervaluation, higher quality or stronger balance sheets (and, in some cases, offered all three) than the companies we were selling. When markets make such extreme moves, desperate investors who need cash have to sell, and those with cash are able to buy— in contrast to normal conditions when trades tend to occur because investors have different time horizons or opinions on a stock’s long-term value. In the past quarter, we often purchased from desperate sellers, using assets from our cash reserves or from selling off some of our holdings that had performed relatively well. To highlight the opportunities available: typically, we at Oakmark buy stocks priced at less than 60% of our estimate of business value and sell them when their price exceeds 90% of that value. During the past few weeks, we were selling stocks priced at 60% or more of our estimate of business value and buying companies priced at less than 40%. To us, these are incredibly compelling opportunities.
Amidst this turmoil, the financial media has been full of speculation as to whether or not the stock market bottom has been reached. We don’t believe anyone knows and we know that we don’t know either. Earlier this month, we wrote a note reminding Oakmark shareholders that we don’t consider market timing to be a skill of ours, so instead we consistently encourage portfolio rebalancing. Today, that likely means selling assets that have performed well, like Treasury bonds, and using the proceeds to buy assets that have underperformed, like stocks. That restores the portfolio balance that existed prior to the stock market’s downturn. In our personal accounts, most of the Oakmark portfolio managers bought more of the Oakmark Funds to rebalance our own investments.
As we look to the new quarter, we anticipate that our trading activity will remain at an elevated level as we continue to adjust to changing stock prices and capture the tax losses created by the downturn. We will also look even more closely at the management teams running our companies. We only invest in those companies that we believe are being managed to maximize long-term business value per share. We will evaluate what our companies accomplish during this downturn and revise our management quality ratings accordingly.
When we look back to 2008, some companies completed strategic acquisitions that were only possible because of the financial crisis: Wells Fargo purchased Wachovia, Liberty Media bought Sirius XM, Comcast bought NBC Universal and Berkshire Hathaway bought Burlington Northern. In hindsight, each of these added significantly to the acquirer’s per share value. Other companies, such as Netflix, took advantage of their own depressed share price to reduce the number of shares outstanding, increasing each remaining share’s percentage ownership. From late 2007 through 2010, Netflix repurchased 27% of its outstanding shares at an average price of $6 per share. Netflix today is priced at $372 per share, more than 60 times the repurchase price. We have no doubt that many of our companies will be looking for the value-enhancing opportunities created by this economic downturn.
On a final note, I want to express my thanks to the Harris Associates IT team. We’ve never been a work-from-home firm, believing that the corporate culture we so jealously guard would be eroded without the shared experience of being in the office together. Despite that, to protect our employees and our investors, we went to a work-from-home mandate a week before the city of Chicago did. It was no small task to make sure that all of our 200 employees could seamlessly communicate with each other, that our many data feeds were fully accessible and that we could execute the increased trading volume that we expected in a high volatility environment. It went off without a hitch.
Our analyst group has remained connected via daily group chats and weekly Zoom happy hours. With virtual meetings, we have maintained our tradition of sharing great lunchtime conversations as a team. It isn’t perfect, so don’t expect us to ever be one of those firms that works primarily from home. But given what I’ve heard from friends at other investment firms, we’ve been able to maintain our usual routines better than most. And to all my colleagues at Harris Associates, if nothing else positive comes from this, working from home has made me extremely grateful for the wonderful bunch of people I typically get to see every day. I miss you all and look forward to the day we can be back in the office together.
We are hopeful that three months from now, when you read our second-quarter commentary, the Cubs will be playing baseball, we will be eating inside of restaurants and we will all be rescheduling the trips we’ve had to cancel. If that has happened, we believe the economy will likely recover quickly as will the stock market. But if it takes longer to return to normal, know that we have weighted our portfolios toward companies that we believe can survive a longer downturn and that we fully expect can emerge stronger on the other side.
#68

Re: Carta de Bill Nygren 1T y cartera

Alphabet Cl A
3.8%
Netflix
3.4%
Bank of America
3.4%
Comcast Cl A
3.1%
Citigroup
3.1%
Facebook Cl A
3.0%
Charles Schwab
2.9%
State Street
2.8%
Capital One Financial
2.6%
TE Connectivity
2.5%
Booking Holdings
2.5%
Constellation Brands Cl A
2.3%
Parker Hannifin
2.3%
Ally Financial
2.2%
Moody's
2.2%
Regeneron Pharmaceuticals
2.2%
Charter Communications Cl A
2.1%
Humana
2.1%
Cummins
1.9%
Bank of New York Mellon
1.9%
S&P Global
1.9%
CVS Health
1.9%
General Electric
1.9%
Wells Fargo
1.8%
American Intl Group
1.8%
Caterpillar
1.8%
Hilton Worldwide
1.7%
General Motors
1.7%
American Express
1.7%
Goldman Sachs
1.7%
Gartner
1.6%
HCA Healthcare
1.5%
Fiat Chrysler
1.4%
Visa Cl A
1.4%
eBay
1.4%
Mastercard Cl A
1.3%
Intel
1.3%
Texas Instruments
1.3%
DXC Technology
1.2%
Automatic Data Process
1.1%
Workday Cl A
1.1%
EOG Resources
1.1%
Concho Resources
1.0%
MGM Resorts International
1.0%
Aptiv
1.0%
Match Group Cl A
1.0%
Apple
0.8%
Qurate Retail Cl A
0.8%
FedEx
0.7%
Diamondback Energy
0.6%
Apache
0.4%
Pinterest Cl A
0.3%
Delphi Technologies
0.3%
#69

Carta trimestral de Bill Nygren y cartera actualizada

The second quarter seemed like the first quarter movie was played backwards. At the beginning of the year, stock prices increased modestly and then quickly plummeted in the fastest ever bear market, with the S&P 500 Index dropping by 34% in 23 trading days. 

The second quarter started with the fastest ever 50-day stock price recovery, during which the S&P 500 shot up 40% (including a few days at the end of March), which was followed by a modest decline. Though not intuitive, a 40% gain doesn’t offset a 34% decline (0.66 x 1.40 = 0.92), so the S&P 500 now sits somewhat below its beginning of the year level. 

For anyone who rebalanced their portfolios after the first quarter decline by adding equity exposure, the sharp rally presented another opportunity to rebalance—this time to trim exposure after price increases. The speed of both the decline and the recovery shows why we suggest using large market moves rather than the calendar as the signal that it’s time to rebalance your portfolios.
In addition, the first quarter began with all of us working in our offices and ended with everyone working from home. That, too, played out in reverse in the second quarter as businesses began returning to their offices in June. We now have about 50 of our 200 employees back in the office, including most of our investment team. Though I’m incredibly proud of how well our employees functioned in work-from-home mode, it is great being back in the office and collaborating with peers, despite it being mask-to-mask.

When companies reported their first-quarter results in April and May, we heard unprecedented use of the word “unprecedented.” The Bloomberg article that included the quote at the top states that almost 75% of companies used the word “unprecedented” during their quarterly conference calls—and IBM topped the charts using it seven times! Calling the environment “unprecedented” gave management teams cover for not meeting their forecasts. As unusual as the past six months have been, I won’t use that word because it unnecessarily heightens investor concerns. Economic conditions change, sometimes abruptly, and we need to respond by changing our valuation estimates to reflect the new expectations. This isn’t the first time conditions have shifted rapidly and it won’t be the last. When lockdown began in March, we quickly changed our near-term forecast to the severely adverse scenario that the Fed uses for its annual bank stress tests. Despite three months of new data to refine that forecast, it’s still our best guess, and it makes the stocks we own appear undervalued.

The financial media has made a parlor game out of guessing what letter or other shape the economic decline and recovery will look like, so our shareholders ask us the same question. We are estimating values based on a scenario that looks kind of like a check mark: a quick, nearly vertical decline, followed by a less vertical, longer recovery that ends up at a higher level than from where the decline started. So, given that the recession began in March, the recovery should get underway in the second half of 2020 and by 2022, GDP should surpass 2019 levels. More important, our valuations are based on discounting cash flows for many years past 2022, years that we expect to average “normal,” and these are much more meaningful to our estimate of intrinsic value than the exact moment the GDP fully recovers. Based on our forecast, we think the S&P 500 is roughly appropriately priced, yet we are having no problem identifying individual stocks that appear significantly undervalued.

Many strategists now claim that “value looks cheap compared to growth.” Though I understand what they mean, and even agree with it, the phrase bothers me. To them, “value” is a euphemism for inferior businesses. But “value” and “growth” aren’t opposites. When we say we are value investors, it doesn’t mean that we limit our investments to below-average businesses. It simply means that we estimate what each business is worth based on its own unique fundamentals and buy only those that are priced well below that estimate. It’s just logical that the value we ascribe to rapid growth businesses is more than we ascribe to slow growth—or declining—businesses. Using our definition of “value,” rapidly growing companies, like Alphabet and Facebook, are “cheap” today, despite having trailing P/E ratios that are higher than the average stock. And slower growth companies, like banks such as Citigroup and Capital One with trailing P/E ratios that are a small fraction of the average stock, also look cheap. To us, “value stocks” are always cheap because, by our definition, they are the stocks priced at the largest discounts to our estimates of business value, regardless of their P/Es and growth rates. Notwithstanding our more inclusive definition of value, last quarter, on days the Russell 1000 Value Index outperformed the S&P 500, Oakmark and Oakmark Select performed better than both over 80% of the time. Based on that, we believe that we are well positioned to profit from a recovery of traditional value investing.
When strategists say that value is cheap, they are referring to stocks that are typically priced at a discount to the average stock (using a statistic like P/E or P/B ratio) and are saying that the current discount is larger than it normally is. 

That is clearly the case for financial stocks today and is why we have more of your assets invested in that industry than in any other. Over the past 30 years, banks have been priced at an average P/E that is about 33% below the S&P 500. For that reason, they are almost always referred to as “value stocks.” Because this year won’t be a representative year, P/E ratios based on 2020 earnings provide little information about how a stock is being priced. Using consensus 2021 estimates instead, the banks we own are selling at an average of 9 times earnings while the S&P 500 sells at 19 times. Selling at a P/E discount of 53% to the S&P 500, our banks would have to increase in price by 40% to be priced at their average discount.

Further, we believe that big banks today are much better businesses than they were previously due to economies of scale in spending for online banking, fraud protection, regulatory compliance and technology. This creates an important cost advantage relative to smaller competitors. In addition, they have more equity relative to their assets, which significantly reduces their risk. Some investors are concerned that with short-term interest rates near zero, banks will struggle with profitability. We believe that banks could charge fees to offset this lost interest income. But that hasn’t been necessary because spreads on mortgages, auto loans and credit cards have expanded as interest rates on U.S. government bonds have fallen. We could argue that the historic P/E discount for banks is no longer appropriate given improved business quality, but that argument isn’t even necessary today because bank stocks look so inexpensive compared to their own history.

Last quarter I closed by saying that when I write next quarter’s report, if we are going to baseball games, eating indoors and re-booking travel plans, the stock market will likely be higher. We aren’t quite there yet, but baseball is developing rules that would allow fans to safely attend games, restaurants are open at reduced capacity and domestic travel has resumed. Three months ago, when less was known about the coronavirus, there was a fear that walking past someone who didn’t know they were sick, or touching the same doorknob as they did, was risking one’s life. Today, much more is understood about both how the disease is transmitted and its severity. It now appears much less dire than was feared back in March, which explains why the stock market has reacted by reversing most of its losses.
Though we believe the market is now reasonably priced, we expect both the economy and value investing to recover and believe that our portfolios are considerably undervalued and well positioned for both recoveries.

Thank you for your interest and for your investment in our funds.

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