The Oakmark U.S. Concentrated Strategy reported a -0.14% return (net) for the first quarter of 2025, underperforming the Russell 1000 Value Index, which posted a 2.14% return during the same period. Despite this, the portfolio’s performance was influenced by strong contributions from the healthcare and financial sectors. In this quarterly review, we break down the market environment, the portfolio’s top performers and laggards, as well as positioning updates for the strategy moving forward.
Market Environment:
U.S. equities experienced a downturn during the quarter, with seven out of eleven GICS sectors posting positive returns. Information technology and consumer discretionary stocks struggled, while health care and financials stood out as the primary contributors to market gains.
Portfolio Performance:
The Oakmark U.S. Concentrated Strategy underperformed the broader market with a -0.14% return for Q1 2025, compared to a 2.14% return for the Russell 1000 Value Index. However, several positions stood out in terms of performance.
Top Contributors:
1. Intercontinental Exchange (ICE):
ICE had a solid quarter, driven by a 16% growth in its Energy Futures business. The company’s strong Q4 2024 results and resumed share repurchases made it one of the top contributors. Despite previously using cash flow to pay down debt from acquisitions like Ellie Mae and Black Knight, ICE’s strategic focus on share repurchases presents a promising outlook.
2. Deere (DE):
Deere’s stock performed well despite the company’s weak fundamentals, stemming from a trough in the farm cycle. Management’s aggressive investment during this downturn is expected to yield long-term advantages. With an estimated EPS of over $30 during the next cycle, Deere’s stock remains attractive at less than 15x earnings.
3. ConocoPhillips (COP):
ConocoPhillips saw its stock price rise after it outlined a positive 2025 guidance, supported by synergies from its recent acquisition of Marathon. The company is expected to experience a significant boost in free cash flow as major capital projects come online. The management’s commitment to returning capital to shareholders remains a key strength.
Top Detractors:
1. Alphabet (GOOG)(GOOGL):
Alphabet was the biggest detractor despite reporting Q4 2024 earnings in line with consensus. The company’s search revenue grew robustly, and its new “AI Overviews” feature drove higher engagement. However, Google Cloud underperformed, with revenue growth falling slightly short of expectations. Despite this, the long-term outlook for Google Cloud remains strong, and Alphabet continues to be a collection of great businesses with valuable AI capabilities. At just 15x estimated next-year earnings, the stock is undervalued.
2. IQVIA Holdings (IQV):
IQVIA’s stock declined due to a slowdown in growth in its R&D Solutions segment, impacted by the Inflation Reduction Act. However, IQV is outperforming competitors, and growth is expected to improve in the latter half of the year. The company’s management executed an opportunistic share repurchase during the quarter, and the stock is considered undervalued.
3. First Citizens Bancshares (FCNCA):
First Citizens’ stock faced pressure due to macroeconomic uncertainty despite strong Q4 2024 earnings. The company’s loans and deposits grew at healthy rates, and it remains on track for strong growth in 2025. The bank is considered well-managed, with an attractive upside potential.
Portfolio Positioning:
During the quarter, the Oakmark U.S. Concentrated Strategy initiated a position in Molina Healthcare (MOH). Molina is a leading managed care company, with a strong track record of growth in Medicaid. Despite recent challenges, including policy uncertainty and redeterminations in Medicaid, the stock is viewed as undervalued with long-term growth potential.
