Stock Market's Best Fund Managers in 2021: Their Picks and Strategies – Business Insider

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4. Bill Nygren: Oakmark Fund and Natixis Trust II Oakmark Fund

The fund blends a traditional value-investing approach with what its comanager Bill Nygren calls a private-equity approach to companies that are spending more on future growth. Both of those worked well in 2021.

The IT services firm Gartner’s stock doubled in value over the past 12 months, while the fund has also enjoyed gains of nearly 70% from the oil and gas exploration company EOG Resources and about 60% each from shares of Google’s parent company, Alphabet; the financial-services giant Charles Schwab; and oil and gas company ConocoPhillips.

Managers Nygren, Michael Nicolas, and Kevin Grant, who is retiring at the end of 2021, invest primarily in large-cap US stocks. They put about two-thirds of their assets into areas like financial services, industrials, and consumer-facing sectors that are relatively standard for value investing.

Financials were by far the largest component of the portfolio and composed 37% of its investments as of September 30, according to Morningstar.

“We’re looking out about seven years and trying to identify companies that will be worth substantially more in seven years than they are today because investors are focusing on short-term issues,” Nygren told Insider.

The other third of their investments are less typical for value style, Nygren said.

“There are more businesses today where customer acquisition, global platform, research and development spending, advertising to develop brand, what we would call income statement investments, create a misleading” price-to-earnings multiple, he said.

He said traditional accounting measurements don’t do justice to companies that spend a lot of money on research and development, like Alphabet, Meta Platforms, or Regeneron Pharmaceuticals. Those measurements are the bedrock of most value-investing approaches.

These companies are being valued on future growth, which results in high price-to-earnings ratios that value investors generally don’t like. But he said those investments are worthwhile and can pay off in a huge way.

So when they are evaluating those companies, Nygren and company strip out the large-scale venture-capital-type spending those companies do — Alphabet’s Waymo or Meta’s Oculus, for example — and evaluate their PE multiples without them.

That means they can find long-term growers that are trading at sensible valuations. Sometimes, he said, they’re buying the company’s core business at a fair price and getting a potentially high-growth future business for free.

Year-to-date return: 30.5% (OAKMX), 30.3% (NEFOX)

Biggest holdings (as of September 30): Ally Financial (3.8%), Capital One Financial (3.7%), Alphabet Inc. (3.7%), Citigroup (3.0%), EOG Resources (2.9%)

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