The Oak Value Fund continues to outperform long-term over its benchmark and has done well on a relative basis during the recession and credit crisis. The fund adheres to its investment philosophy and will probably continue to stay ahead of its benchmark in the future.
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The Oak Value Fund focuses on large capitalization stocks and follows a value investing philosophy. The fund is managed by a team of three managers out of Durham, North Carolina. As their website summarizes, the fund believes that "current market price is not always an accurate reflection of the true worth of a business," preferring instead "high quality companies with solid competitive advantages, run by capable, fair-minded management teams, purchased at sizable discounts from their intrinsic values." The fund uses a 3-5 year time frame when selecting stocks to purchase. (Learn the basic tenets of value investing in our article, The Value Investor's Handbook)
Since the fund began in 1983, it has surpassed the S&P 500 on a ten-year basis but underperforms on a five-year basis. The fund has outperformed during the current bear market, beating its benchmark on a three month, one year and year to date basis. The full returns as of April 30, 2009 are shown in the table below:
|3 Month||YTD||1 Year||5 Year||10 Year||Inception|
|Oak Value Fund||15.73%||3.79%||-27.92%||-3.08%||-0.62%||7.55%|
The odd statistic is the five-year performance, where the fund lags its benchmark by 38 basis points. This is easily explained by looking at annual statistics where the fund underperformed each year from 2004 to 2007. However, Oak Value did have positive absolute performance for three of those years. While some cynics may see this as a rejection of its investment process, it is more likely the result of Oak Value's focus on long-term payoff by purchasing value stocks.
Given the superior long-term performance, the managers deserve the benefit of the doubt that the investments they have made will eventually prove fruitful over the 3-5 year investment horizon they are looking at.
The fund's largest position is Berkshire Hathaway, Inc. (NYSE:BRK.A) which was 9.7% of the fund's assets. This stock is a core holding of many other value funds as well.
Praxair, Inc. (NYSE:PX) is the next largest at 7.2%. The company is in the industrial gas business and has been battered by the recession, peaking near $100 last summer before losing about half its value. The stock has since recovered and trades at $72.52 (at May 18th close).
Avon Products (NYSE:AVP) is a personal products company that sells cosmetics, fragrances, jewelry, apparel and other goods. The stock has a dividend yield of 3.55%. Avon is 6.1% of the portfolio.
Oracle Corp. (Nasdaq:ORCL) is the fourth largest position at 5.7% of the portfolio. This is an interesting choice since many value investors won't invest in technology stocks. Among the investors following this rule is Warren Buffett, who runs Berkshire Hathaway, the fund's largest position. However, Oracle does have other characteristics that value investors seek, including high insider ownership.
Diageo plc ADS (NYSE:DEO) is 5.7% of the fund. The company sells wine, beer and other alcohol products worldwide.
The Bottom Line
The Oak Value Fund has managed well through the recession and bear market, relatively outperforming in 2008 and year to date. How? By sticking to the value investing strategy that it believes in. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)