Oakmark Equity and Income Fund (OAKBX) Reopened to New Investors

Mutual Fund:
$1,000 minimum

Reviewed by:
On September 19, 2012
Last modified:September 19, 2012


Oakmark Equity and Income Fund (OAKBX) is a balanced fund that offers investors both income generation and capital growth. The fund takes a value investment approach when selecting equity securities in its equity coverage and investing mostly U.S. government bonds and investment-grade cooperate bonds for its fixed income portion. The fund has a 0.77% expense-ratio and $1,000 initial minimum investment requirement.

Even though I am well aware of the fact the index funds are much cheaper than actively managed funds due to less management and research involved in index funds, I still hold a very active portfolio that contains mostly actively management funds that I have been investing for more than 10 years. One of those funds is Oakmark Equity and Income Fund (OAKBX).

What I like about OAKBX is its balanced approach the fund’s manager takes in investing in both equity and fixed income securities, which leads to income generation and growth of capital. The fund’s objective is to invest between 40 to 75 per cent of its assets in equities and up to 60% of its assets in U.S. government issued debts or investment-grade corporate debts. A small portion of the assets can also be invested in the so-called junk bonds. According to the fund report released at the end of the second quarter of 2012, 53 of its total holdings, which make up about 70% of the fund’s total assets, are in equity while other 36 are in fixed income. Among the fund’s equity holdings, a little over 80% are in U.S. equities and equivalents and the rest are international equities and equivalents. The top equity holding of OAKBX is UnitedHealth Group, which will be added to The Dow Jones Industrial Average, replacing Kraft Food in the benchmark.

For the equity part of the investment, the fund takes a value investment philosophy in selecting which stocks to invest. With the value based investment, the fund’s management tries to identify “companies that it believes have discounted stock prices compared to the companies’ true business values.” So basically, in stead of chasing high flying stocks, such as those technologies stocks, the fund is looking for value stocks at discount. On surface, this may cause concerns to some investors if the fund is only judged by its return because OAKBX could appear to be lagging S&P 500 Index due to the value approach and the large investment in fixed income equities. Of course, it’s not really fair to compare OAKBX against S&P 500, but that’s the widely used benchmark. I had that concern in the early 2000s’ when the recovery began after the dot com bubble and the fund’s return wasn’t as strong as I had hoped and I cut my automatic investment from $100 per month to $100 every two months. However, over the years, my perception of this fund has changed after witnessing roller-coaster performance of other funds that I own in the same portfolio, such as CGM Focus Fund (CGMFX). Actually, OAKBX’s performance is rather robust in the past ten years. According to Morningstar.com, OAKBX has a 10-year total return of 8.58% and 15-year 9.27%, which are quite remarkable for a moderate fund, even though the fund returned a dismal 0.64% in 2011. Since I want to build a diversified portfolio that not only contains growth funds, value funds, and balanced funds, OAKBX fits pretty well for me in this regard.

OAKBX was closed to new investors in May 2010, but reopened its door starting August 1, 2012. If you are looking for a diversified balanced fund to add to your investment portfolio, OAKBX is worth a look. With an expense ratio (ER) at 0.77%, OAKBX is a low-cost fund to own even outside the tax deferred accounts. The initial minimum investment amount is $1,000. For subsequent investments, the minimum amount is $100.

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