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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Oakmark International Small Cap outperformed by 330bps in Q2 2023 as private equity interest validated portfolio company values, though bids were deemed below intrinsic value. New positions in Adecco, Euronext, and Sapiens reflect continued focus on undervalued European small caps with operational improvement potential and strong business fundamentals."
The Oakmark International Small Cap Fund returned 3.8% in Q2 2023, outperforming its benchmark by 330 basis points. The quarter was marked by significant private equity interest in portfolio companies, with Software AG receiving a takeover bid from Silver Lake at EUR 32 per share, Applus attracting interest from three PE firms including Apollo, and SoftwareOne rejecting an unsolicited offer from Bain. While these bids validated the fund's value identification process, management viewed the offers as below intrinsic value estimates. The fund initiated three new positions: Adecco, a staffing company with new management and turnaround potential; Euronext, a pan-European exchange trading at record low multiples despite strong fundamentals; and Sapiens International, positioned to benefit from insurance industry modernization. Viaplay was the quarter's top detractor following a profit warning and CEO change, though management maintains confidence in the underlying Nordic business. The portfolio remains concentrated in Europe at 79.6% of holdings, reflecting the manager's focus on identifying undervalued quality businesses in the region.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction evidenced by concentrated portfolio moves - eliminating five positions and adding five new ones with specific valuation targets. Managers provide detailed thesis for each new holding with precise earnings multiples and clear catalysts for value realization.
Growth Outlook
The managers express optimism about finding cheap stocks on traditional value metrics and expect attractive long-term returns despite acknowledging the current headwind to value investing.
Risk Appetite
The fund actively rotated from growth stocks back to traditional value positions, initiating five new holdings while eliminating five others, demonstrating willingness to take concentrated positions in undervalued companies.
Capital Deployment
The fund engaged in significant rotation, selling five positions to fund five new investments, but this represents capital reallocation rather than net deployment. No evidence of cash level changes or net new capital being put to work.
Forward Guidance
The managers expect to drive attractive returns in the long term but acknowledge current headwinds to value investing, showing measured optimism about future deployment opportunities.
Language Signal
Language is predominantly positive with terms like 'attractive returns,' 'cheap stocks,' 'compelling opportunities,' and 'well below intrinsic value' outweighing risk language about headwinds and temporary pressures.
Perceived Risk
Moderate risk acknowledgment with discussion of headwinds to value investing, temporary margin pressures from inflation and supply chain issues, and cyclical downturns affecting some holdings, but risks are framed as temporary rather than systemic.
Opportunity Density
Strong opportunity density indicated by finding five new attractive traditional value investments despite challenging environment for value investing. Managers specifically state they are 'finding cheap stocks on traditional value metrics today.'
Time Horizon
Multi-year investment horizon evidenced by focus on normalized earnings power rather than current results, expectation that temporary headwinds will resolve 'in the years ahead,' and long-term value realization thesis for each new position.
