The Oakmark Fund has underperformed the S&P 500 for 3 years running, but Bill Nygren is still defending his strategy

The Oakmark Fund is allocated 30% to the financial sector, which has lagged the S&P 500 so far this year.
The market is overly focused on earnings, Nygren says.
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The Oakmark Fund underperformed the S&P 500 by 4 percentage points last year. That was the third year in a row that the stock market beat Bill Nygren's mutual fund -- but despite that, Oakmark will keep its investment strategy in 2020, Nygren said in a fourth-quarter note to investors. "Investors were not very concerned about valuation levels" in 2019, said Nygren, portfolio manager at Oakmark Funds who pursues value investing, a strategy that picks stocks thought to be priced below their intrinsic value. That philosophy emphasizes names with low price-earnings ratios, a metric that some say can indicate whether a company is over- or undervalued.

But the trend among investors and analysts has been toward highlighting growth and earnings in recent years rather than price-earnings, he said, "just like during the height of the tech bubble." That has left the names in the Oakmark Fund undervalued, Nygren said. The Oakmark Fund's largest allocation is to the financial sector, which has a lower price-earnings ratio than the index and makes up nearly a third of the portfolio. Returns have been sluggish in the financial sector in recent years, often lagging the S&P 500 as a whole. The sector has started out 2020 on the same path, returning just 0.16% versus the S&P 500's 3.06% gain. "We believe the market will eventually reflect our view," Nygren said, adding that Oakmark invests for the long-term and most value-investment funds have underperformed in a market focused on earnings and growth.

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