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By Christine Benz and Shannon Zimmerman | 10-07-2013 11:00 AM

What Oakmark International's Closure Means for Investors

Oakmark International manager David Herro's closure of the fund is a preemptive move to taper asset flows and put shareholders first, says Morningstar's Shannon Zimmerman.

Securities mentioned in this video
OAKIX Oakmark International I

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Oakmark International recently announced that its closing to many investors. Joining me to discuss what the news means for current and prospective shareholders is Shannon Zimmerman. He is associate director of fund analysis with Morningstar.

Shannon, thank you so much for being here.

Shannon Zimmerman: Good to be with you, Christine.

Benz: Shannon, on Oct. 4, Oakmark announced this news. The fund is not closing to all investors. Let's talk about what channels it is shutting itself off to.

Zimmerman: It's going to be available directly through the Oakmark website. If you want to open a new account, you're able to do that as a new investor. If you have Oakmark International in your 401(k) plan, you'll be able to continue to invest in it via that platform, as well. But otherwise, new investors are going to have a hard time getting into this fund. Current investors can continue to send new dollars, however.

Benz: David Herro runs Oakmark International and other sums of money in a similar style. Let's talk about how large Oakmark International is as sort of a percentage of all of the money that he runs in total.

Zimmerman: Oakmark International now [is at] $24 billion which is the largest the fund has ever been. But that's not all the money that he runs in that strategy. We've talked about this before. Fund managers often run money in the same style and the same strategy, the same portfolio but in different vehicles--separately managed accounts, for instance. If you look at the fund assets, certainly the bulk of assets are in the Oakmark International strategy. But all-in, there's over $30 billion in the international strategy.

Benz: The closing then really isn't necessarily going to be a huge help, or how do you look at that issue if he's running all of these other assets over here?

Zimmerman: Right. And those aren't closed, right? I view it as tightening the spigot. It's restricting flows; that's a good thing. A hard close to me is always the best-in-class move, and clearly, he's making this move to soft close because he thinks there is some upper limit in terms of assets for this strategy.

The performance so far doesn't suggest that he's hit that. This seems like a preemptive move. But still the fact that it's the largest that it's ever been and there's a considerable sum outside the fund makes you wonder how much longer should flows continue to come in, in the way that they have. And I should say, too, it's not just the size of the assets in the fund; it's the pace with which the flows have come in--over $10 billion in last 12 months alone. He has to put all that money to work.

Again, performance hasn't slackened at all. [The move] seems to be preemptive, but at the same time it's obviously a move toward acknowledging the capacity of the strategy.

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