Assessing Oakmark's 2025 Performance and the Value Opportunity Ahead

The Oakmark Fund's recent results are a study in disciplined execution against a powerful, but challenging, market backdrop. In the fourth quarter, the fund delivered a 4.78% return, decisively outperforming the S&P 500 Index's 2.66% gain. This beat is even more notable when viewed over the full year, where the fund's 1-year return of 14.11% edged past its 10-year average of 13.71%. The story is one of consistent, if narrow, outperformance.

Sector-level analysis reveals the fund's stock-picking strength. At the quarter's end, communication services and health care were the largest contributors to performance, while energy was the only detractor. This breakdown underscores a portfolio that avoided the energy sector's volatility and instead captured growth in two of the year's most dynamic areas.

Yet the true test of any value-oriented strategy is how it fares when the market's dominant theme is the opposite of value. In 2025, that theme was momentum. Stock price momentum was the defining force across global equity markets, with U.S. momentum stocks outperforming the broader market by roughly 17 percentage points. For a fund built on identifying undervalued businesses, this created a significant headwind. The fact that Oakmark still managed to beat the S&P 500 in Q4 and finish the year with a return that narrowly surpassed its long-term average is a testament to the skill of its managers. It suggests their deep-dive analysis allowed them to find pockets of value even within a market where price trends often overshadowed intrinsic worth.

The Oakmark Process: Discipline in a Fickle Market

The fund's ability to outperform in a momentum-driven year points to a source of competitive advantage deeper than any single stock pick: its disciplined investment process. At its core, Oakmark operates on a classic value philosophy, seeking to buy businesses at substantial discounts to their intrinsic value. This approach is designed to build a "margin of safety," a concept central to the Buffett/Munger school, which reduces risk and provides a foundation for above-average returns over time. It is a philosophy that demands patience, the belief that market recognition of true worth will come, often after periods of neglect.

This philosophy is not applied in isolation. It is enforced by a rigorous, committee-driven research process that actively cultivates intellectual tension. As Chief Investment Officer Bill Nygren has noted, the process involves thorough vetting of new ideas, a hallmark of a team that does not simply chase consensus. This structure is meant to challenge assumptions and ensure that every investment decision is backed by deep analysis, not just optimism. The firm's commitment is personal as well as professional; Harris Associates employees, officers, and trustees have over $1 billion invested in the funds themselves, aligning their fortunes with those of their clients.

The results of this process are visible in the portfolio's construction. The fund maintains a high active share of 90.48% versus the S&P 500, a figure that signals a deliberate, non-indexed approach. This level of divergence means the portfolio is built on Oakmark's own research and convictions, not a passive replication of market weights. It is a concentrated bet on the firm's best ideas, a strategy that requires both confidence and the discipline to hold through periods of underperformance.

That concentration is exemplified by its top holding, CDW Corporation. The fund highlighted CDW in its Q4 investor letter, noting it is not a popular stock among hedge funds. This is a classic value move: identifying a solid business with a strong market position that is overlooked or undervalued by the broader market. The fund's willingness to hold such a position, even as it acknowledges other opportunities, reflects a portfolio built around conviction rather than popularity. In a market where momentum often overrides fundamentals, this disciplined, process-driven approach is the firm's most durable asset. It is the engine that allows it to find value where others see noise.

Valuation and the Case for Value: A Widening Gap

The current market setup presents a classic value investor's dilemma-and opportunity. The valuation gap between growth and value indexes is now at its widest since December 2000, a period that preceded a multi-year bear market. This extreme divergence is the direct result of two years of exceptional growth outperformance. In 2024 alone, the S&P 500 Growth index gained 35% while the S&P 500 Value index rose just 9.5%. That kind of sustained momentum pushes valuations to historically rich levels. As of early January, the S&P 500's P/E ratio stood at 29, and the Nasdaq 100's P/E neared 37-a level not seen since the peak of the dot-com bubble. After such a run, the historical pattern suggests value stocks are due for a period of relative strength.

This isn't just a statistical anomaly; it's a structural imbalance. The concentration of growth stocks in major indexes has left portfolios underexposed to value. As BlackRock's global chief investment officer noted, growth stocks now make up 37% of the S&P 500, well above their historical average. This lack of diversification can be a vulnerability. Value stocks have historically provided portfolio insulation during market downturns, a role they played notably in 2022. The recent data offers a glimmer of that rebalancing in motion. Over the past six months, mid-cap value stocks have beaten growth, with the S&P 400 Value index returning 21.5% versus 8% for its growth counterpart. This shift, while modest, signals that the rotation may be beginning.

Oakmark's own portfolio construction exemplifies the focus on established businesses with tangible assets and operations that define a value approach. The fund's top holding, CDW Corporation, is a prime example. The company is not a popular stock among hedge funds, a characteristic that aligns with the fund's philosophy of finding overlooked value. CDW is a leading IT solutions provider with a clear business model, a market capitalization of $17.6 billion, and a track record of steady sales growth. It represents the kind of durable, operational business that can compound value over time, a stark contrast to the speculative narratives that often drive momentum in growth stocks. In a market where valuations have stretched, this focus on substance over story is not just a style-it's a potential hedge. For a disciplined investor, the widening gap between price and intrinsic value is the signal to look closely. The setup, while not promising a quick pop, offers the long-term compounding opportunity that is the core of the value proposition.

Catalysts and Risks: What to Watch for the Thesis

The value opportunity hinges on a single, forward-looking catalyst: a sustained shift in market leadership from momentum to value stocks. The historical pattern is clear. Periods of pronounced momentum have consistently created attractive long-term opportunities for value-oriented investors. After two years of exceptional growth outperformance, with the S&P 500 Growth index gaining 35% last year while the value index rose just 9.5%, the market is at an extreme. This sets the stage for a rotation. The early signs are encouraging; over the past six months, mid-cap value stocks have already beaten growth, with the S&P 400 Value index returning 21.5% versus 8% for its growth counterpart. For Oakmark, this is the ideal environment. Its disciplined process, built on finding businesses trading below intrinsic value, is designed to thrive when the market's focus turns from price trends back to fundamentals.

Yet the primary risk is that momentum leadership persists longer than historical patterns suggest. The evidence shows momentum has been the defining force in 2025, with U.S. momentum stocks outperforming the market by roughly 17 percentage points. This leadership has proven resilient, rebounding sharply after temporary setbacks. If this speculative, sentiment-driven phase continues, Oakmark's concentrated, non-momentum portfolio could face further periods of underperformance. The fund's high active share of 90.48% versus the S&P 500 means it is deliberately positioned against the market's dominant theme. While this is the source of its potential long-term edge, it also means it must endure the volatility and potential stagnation that come with being out of favor.

A broader economic downturn represents a second, more systemic risk that would pressure all equities. In such a scenario, the fund's focus on established businesses with tangible assets and steady operations-a hallmark of its value approach-could provide a relative buffer. However, the entire portfolio would still face headwinds from reduced corporate earnings and tighter credit. The fund's structure, with a relatively small number of stocks, means any single security's weakness could amplify overall volatility during a downturn.

For the thesis to hold, investors must monitor the fund's consistency with its stated process. The key metrics here are portfolio turnover and active share. High turnover could signal a departure from the buy-and-hold philosophy central to value investing, while a declining active share would indicate the portfolio is drifting toward the market average. Both would undermine the competitive moat Oakmark has built. The fund's recent high active share and its focus on overlooked, non-popular stocks like CDW suggest the process remains intact. Watching these metrics over the coming quarters will be critical to confirming that the fund's discipline is as durable as its long-term returns.