Investing
Oakmark Fund skipped AI infrastructure stocks and calls it a missed opportunity
By Bear Creek Staff, . Bear Creek Capital Network.
Harris Associates' Oakmark Fund told investors in its Q3 2026 commentary, published by Seeking Alpha, that sidestepping AI infrastructure companies, chip makers, memory producers and related hardware names, has been "a big missed opportunity" so far this year. More than half of the Russell Value Index's gains in 2026 came from those names, according to the commentary, and Oakmark held none of them.
The fund's reasoning was not that the companies were overpriced in a simple sense. The team said it could not determine whether the earnings surge in those businesses was durable or cyclical, and without that conviction it treated them as too risky. If the earnings hold, the commentary acknowledged, those stocks may keep performing. If they prove cyclical, the fund expects them to give back the gains, and noted that Russell moved most of those names from the Value Index into the Growth Index at the end of June, meaning any eventual reversal would hit the Growth benchmark rather than the Value one.
A separate issue the commentary addressed is how the fund classifies its holdings relative to Morningstar's size categories. Oakmark defines large companies by fundamental scale, specifically by ranking among the 250 largest U.S. businesses by sales, earnings before interest and taxes, or shareholders' equity, which produces a universe of roughly 350 names. Morningstar uses market capitalisation, with its large-cap threshold sitting at approximately $90 billion. Because the fund owns businesses with low price-to-earnings ratios, holdings including General Motors, Delta Air Lines and Nike now fall into Morningstar's mid-cap bucket, even though they are large by any operational measure. The mid-cap segment that has actually outperformed, the commentary noted, consists of smaller companies with high valuations and strong growth narratives, which is not what Oakmark owns.
The most operationally significant disclosure in the commentary concerns a change to how the fund manages position sizing. A newly built internal quantitative team reviewed historical results and found that Oakmark had been treating its research as though it was directionally right on most holdings, rather than distinguishing between positions where the team's analysis was highly accurate and those where it added little. The fund compared the error to betting on a baseball game and then ignoring the score after two innings. Going forward, the team said it will be less inclined to add to positions when business results have diverged from the original thesis, and less inclined to trim when fundamentals are tracking as expected but the stock has not yet reached the sell target.
On valuation methodology, the commentary described a discounted cash flow framework that sums expected shareholder returns through perpetuity, discounted at a rate tied to bond yields plus a risk premium. Higher inflation raises bond yields, which compresses estimated values, but also tends to lift expected earnings growth, providing a partial offset. The fund said higher rates make it prefer companies returning cash now, through buybacks or dividends, over those reinvesting for growth far out. It specifically favours companies willing to repurchase shares when those shares trade below intrinsic value, arguing that buybacks at a discount increase per-share value for remaining holders and can convert excess supply into net demand.
The fund's three largest holdings as of the commentary are Salesforce, Airbnb and Intercontinental Exchange, all of which the team described as having growth-company track records but trading at prices it considers undervalued. That framing is a direct rebuttal to the perception, which the commentary acknowledged still exists, that value investing means buying below-average businesses.
The candour here is worth taking seriously. A fund manager publicly calling out a missed opportunity, naming the specific category it avoided and explaining the reasoning without walking it back, is more useful to a reader than a defensive quarterly letter. The harder question the commentary does not fully resolve is whether the quantitative adjustment to position sizing will change outcomes or simply formalise what experienced analysts were already doing informally. No performance data tied to the new process was provided, and the commentary as published does not cover the fund's full Q3 return figures in the portion available.
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