The Oakmark U.S. Large Value Strategy's portfolio experienced a net return of 3.26% during the third quarter of 2025, trailing the Russell 1000 Value Index, which achieved a 5.33% return over the same period. This commentary provides a detailed overview of the market conditions, the portfolio's performance highlights, including its top contributing and detracting holdings, and adjustments made to its positioning. The U.S. equity market saw overall gains, largely propelled by strong performances in the information technology and communication services sectors, with consumer staples being the only sector to decline. New investments were made in Targa Resources and Union Pacific, reflecting the strategy's bottom-up, fundamental analysis approach.
During the quarter, the U.S. equity markets generally moved upwards, with robust contributions from the information technology sector, followed closely by communication services. Conversely, the consumer staples sector was the only one among the eleven Global Industry Classification Standard (GICS) sectors to record negative returns, thus acting as a drag on overall market performance. These broader market dynamics provided the backdrop against which the Oakmark U.S. Large Value Strategy navigated the investment landscape.
The portfolio's performance was significantly influenced by several key holdings. Alphabet (GOOG), Warner Bros Discovery (WBD), and Citigroup (C) emerged as the top contributors. Alphabet's stock appreciated due to a favorable ruling in the Google Search antitrust case and strong second-quarter earnings, which highlighted increasing engagement and revenue from innovations in Google Search, alongside accelerating Cloud growth driven by AI workloads. Warner Bros Discovery saw a substantial surge in its stock price, partially fueled by reports of it being an acquisition target, suggesting potential for significant cost synergies and the creation of a formidable competitor with an extensive content library. Citigroup delivered solid second-quarter earnings despite a volatile macroeconomic environment, with management's commitment to share repurchases and progress towards its return on tangible common equity target bolstering investor confidence.
On the other hand, Centene (CNC), Charter Communications (CHTR), and Keurig Dr Pepper (KDP) were the primary detractors. Centene's stock declined after a downward revision of its 2025 earnings per share guidance, attributed to cost pressures in its Medicaid and Marketplace businesses. Charter Communications' shares fell following weaker-than-anticipated second-quarter earnings, marked by flat year-over-year earnings before interest, tax, depreciation, and amortization, and a greater-than-expected decline in broadband subscriptions. Keurig Dr Pepper's stock dipped after the announcement of its acquisition of JDE Peet's, which, despite strategic sense in separating coffee and soft drink segments, raised investor concerns about increased debt and unexpected exposure to the coffee category.
New positions were strategically initiated in Targa Resources (TRGP) and Union Pacific (UNP). Targa Resources, a prominent midstream natural gas and natural gas liquids company, was added due to its significant cost advantages, high barriers to entry in the Mont Belvieu hub, and its revenue stability from multiyear fee-based arrangements. The investment was made at a discount to peers, reflecting confidence in its growth potential even with a potential slowdown in Permian oil production. Union Pacific, a leading Class I railroad, was included for its essential infrastructure, strong pricing power, minimal technological disruption risk, and recent operational improvements under new leadership. The stock was considered undervalued, with additional upside potential from a proposed merger that possesses strong strategic and financial rationale. Positions in BlackRock (BLK), Centene (CNC), and Kenvue (KVUE) were exited during the period, reflecting continuous portfolio adjustments based on market dynamics and intrinsic value assessments.
The portfolio management team continues to apply a disciplined, bottom-up fundamental analysis approach to investment selection, despite prevailing market trends that have often favored a narrow set of U.S. growth companies. This steadfast commitment to identifying undervalued businesses with strong profit potential and capable management remains central to the strategy's long-term objective.