TE Connectivity Ltd (TEL) and TRW Automotive Holdings Corp. (TRW) were among the largest contributors to the outperformance of the Oakmark Select Fund (OAKLX), which grew 32% in 2013, and which currently holds approximately $4.0 billion in assets and in about 20 U.S.-based securities, says Anthony P. Coniaris, CFA, Co-Manager of The Oakmark Funds.
“We outperformed because of strong stock selection — as we discussed in the last quarter’s letter — as well as from an allocation to more economically sensitive industries. The latter was not some master macro plan, but rather the outcome of our detailed, bottom-up process of estimating business value. We just happened to find the most value in more economically sensitive names in sectors such as financials, industrials and consumer discretionary,” Coniaris said.
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Coniaris says the contribution of TEL and TRW can be attributed to the large gap he found between the long-term intrinsic value of the companies and the stock price, which the market began bridging, though he says these particular holdings remain undervalued.
“What we do is estimate the company’s long-term intrinsic value, and then look at the difference between that and the stock price to evaluate the upside of the investment. TRW and TE Connectivity are still very large positions in the fund, because they remain at significant discounts to intrinsic value despite their strong performance this year,” Coniaris said.
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