Silver-rated Oppenheimer Global fishes globally for growth ideas.
By Patricia Oey | 06-17-17 | 10:48 PM | Email Article

The following is our latest Fund Analyst Report for Oppenheimer Global Fund Class A . Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

Patricia Oey is a senior analyst, alternative strategies, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

With a seasoned team, a consistent approach to growth investing, and low fees, Oppenheimer Global earns a Morningstar Analyst Rating of Silver.

Rajeev Bhaman has built an enviable record over his 21 years at Oppenheimer. He has been on this strategy since 2004, and performance has been impressive, something we don't expect the April 2017 appointment of comanager John Delano to temper. Delano is also a veteran of the firm, and has worked alongside Bhaman since 2010. The pair are supported by two seasoned analysts, and while this team is small relative to peers, the focused process and low-turnover approach ease our concerns.

The managers' preferred hunting ground is high-quality, innovative firms in industries with long-term structural growth. Once they find these types of businesses, the team will hold for the long term, believing that well-run firms tend to sustain their competitive advantages. The approach leads to a strong growth bias, and results in a portfolio of about 80 names that bears little resemblance to the fund's MSCI ACWI benchmark. This is best illustrated by the large overweightings to technology, consumer cyclicals, and healthcare names, and typically little to no exposure to basic materials and energy.

This concentrated exposure has been a source of strong performance, but limited diversification can lead to underperformance at certain points in the cycle--as was the case when energy and materials companies rallied in early 2016. The same year, the managers' bet on European banks was also drag on performance. However, they continued to be optimistic about the sector's medium-term outlook, and in keeping with their patient approach, maintained their holdings to benefit as banks rebounded in the first half of 2017.

The fund has exhibited slightly greater volatility relative to Morningstar Category peers, but investors have been well rewarded with risk-adjusted returns that have been solidly above average over the past decade. Below-average fees further support our favorable view. Patient, long-term investors would be well served by this fund.

Process Pillar: Positive | Patricia Oey 06/14/2017
This fund earns a Positive Process Pillar rating. The managers favor companies with sustainable competitive advantages and good management operating in growing industries. Often these stocks fit into one of four investment themes, which form the acronym MANTRA: mass affluence, new technology, restructuring, and aging. As a result, the portfolio has typically sported larger concentrations in companies operating in areas such as technology, luxury goods, biotech, and financial services.

The team buys new names or adds to existing holdings when there is mispricing for a particular security, or when there is countrywide market volatility, perhaps because of macroeconomic or political issues. For example, the fund currently holds one large bank in each major market in Europe. The managers are optimistic about the medium-term outlook for these banks, and continue to believe the market is pricing an overly onerous regulatory environment.

The portfolio's annual turnover has averaged around 10% during the past three years, which is relatively low. This is because the managers believe that quality companies with good leadership tend to sustain their competitive advantages and deliver good returns over many years. The fund will shed names, however, if fundamentals deteriorate or when stocks become significantly overvalued relative to their long-term prospects.

The fund typically holds between 75 and 100 names and to maintain diversification, rarely allows a holding to hit 5% of assets. The fund tends to be overweight Europe and Japan and underweight the U.S. relative to its category peers. Bhaman continues to like Japan, as corporates make progress on capital efficiency and how they treat public shareholders. Japan is also home to a number of top players in the area of automation and consumer device components, such as Murata, Keyence, Nidec, and Kyocera, all of which have been long-term holdings here.

Other themes present in the portfolio include names that 'connect', such as  Facebook ,  Alphabet , and Airbus, and companies such as Unilever and  Colgate-Palmolive , which are well positioned in the growing emerging markets. In healthcare, the fund holds biotech names, such as  Biogen  and Ionix Pharma, as well as managed-care providers, such as  Aetna  and  Anthem , which should benefit from an aging population in the U.S. The fund also maintains a small allocation to turnaround stories, such as  Whole Foods Market , which was added in late 2016 and subsequently has become the target of an activist investor.

This fund invests in themes similar to those in George Evans'  Oppenheimer International Growth fund , but the funds have little holdings overlap, as this fund maintains about a 45% exposure to U.S. firms, whereas Evans' fund hold no U.S. firms.

Performance Pillar: Positive | Patricia Oey 06/14/2017  
Better than average three-, five-, and 10-year performances earn this fund a Positive Performance rating.

Through May 2017, the fund's three-, five-, and 10-year returns have been in the top quintile, relative to other funds in the world large stock Morningstar Category. On a risk-adjusted basis, the fund's relative performance was not as strong (generally in the top third), but still above average, relative to category peers.

The managers prefer to hold names for the long term, and as of April 2017, each of the top 10 holdings has been in the portfolio for at least five years. Almost all of them have exhibited strong outperformance over that period, such as Alphabet, S&P Global , Facebook, Aetna, and Airbus.

2016 was a challenging year, when returns fell to the 80th percentile relative to category peers. The detractors included speculative names such as solar company SunEdison and biotech Celldex Therapeutics , both of which are no longer in the portfolio. Other underperformers included European banks, such as UBS and SocGen, which remain in the portfolio and have recovered in 2017.

The fund courts a little more volatility than its average peer, as it holds some turnaround names and maintains about an 8% allocation in biotech firms. During market downturns, like in 2011 and 2008, it tends to fall in line with the market. But during market rallies, it tends to outperform.

People Pillar: Positive | Patricia Oey 06/14/2017 
A co-portfolio manager with a solid long-term record and a seasoned research team warrant a Positive People rating.

Rajeev Bhaman, 53, has been a manager of this fund since August 2004. He joined Oppenheimer in 1996, and his first charge was  Oppenheimer Developing Markets , which he skippered from its inception in 1996 through 2004, with impressive results. Currently, Bhaman is also director of global equities and has six portfolio managers (each with his own respective fund) reporting to him. Prior to joining the firm, he worked for seven years as an Asia equity analyst at Barclays de Zoete Wedd.

In April 2017, John Delano was promoted to co-portfolio manager. He has worked alongside Bhaman on this fund since October 2010 and has been at Oppenheimer since 2006. Prior to Oppenheimer, he was at Putnam for nine years.

The managers are supported by two analysts. Sanjiv Talwar, who has 11 years of industry experience, also spent 20 years in the medical research field. Hugh Coffee joined in 2016 and has more than 25 years of experience working with Asian equities. This small team of four often shares ideas with colleagues on the global equity team (all located in New York), which is composed of around 25 investment professionals.

Bhaman invests more than $1 million in this fund, which helps align his interests with those of shareholders.

Parent Pillar: Neutral | 02/02/2016  
Art Steinmetz became CEO of OppenheimerFunds in July 2014, the firm’s first from its investment ranks, after managing several of its taxable-bond funds for many years. Steinmetz replaced Bill Glavin, who joined the firm in 2009 to help clean up the mess that occurred following the 2008 financial crisis, when several key Oppenheimer fixed-income funds suffered massive losses due to hidden risks. Since taking over, Steinmetz has been trying to move Oppenheimer forward in a positive way, launching new funds and emphasizing offerings that can (he hopes) outperform in areas where passive and index vehicles don't do well.

Overall fund performance has improved since the financial crisis, and the company has made strides in the area of manager ownership of fund shares. More than half of fund assets are run by managers with at least $1 million personally invested alongside fundholders, twice the level of two years ago. And although the firm’s average fee-level percentile still lands in the "average" range for fees overall, it represents continued improvement.

That being said, Oppenheimer still has to show that it can attract and retain top portfolio managers in all parts of its business. It still remains to be seen if Oppenheimer can stand out from the industry set as it transitions from "fix-it" mode to one more of growth and new-product initiatives and one under new leadership.

Price Pillar: Positive | Patricia Oey 06/14/2017    
With below-average fees, this fund earns a Positive Price rating.

The A shares, which hold about 70% of the fund's assets, carry a 1.15% annual expense ratio. Relative to retail-distributed global equity funds, this fund's fee falls in the lowest fee quartile.

The next-largest share class, its institutional Y shares, charges 0.90% annually. This fund's fee lands in the second-lowest quartile relative to global equity funds distributed via the institutional channel.

The fund has a large $3 billion in unrealized gains, with only about $62 million in realized losses, as of September 2016. In 2014 and 2015, distributed capital gains accounted for less than 5% of net asset value in each of those years. The fund did not distribute gains in 2016.

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Patricia Oey does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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