Oakmark Manager Optimistic About Fund's Holdings

The Oakmark Equity & Income Fund generated a 9 percent return in 2012, trailing its benchmark, the Lipper Balanced Fund Index, by 3 percentage points. Since the fund's inception in 1995, the annualized compound rate of return is 11 percent vs. the index's 7 percent return.

In his quarterly letter to shareholders, fund manager Clyde McGregor said the fund lagged in 2012 for several reasons:

• Bonds and high-yield dividend stocks became overpriced.
• The managers failed to predict that energy exploration and production company stocks would follow the price movements of natural gas, despite their attractive valuations.
• The fund did not invest in financial stocks, which enjoyed a banner year.

"We are optimistic about the fund's holdings," McGregor wrote. "We believe our equities remain attractively priced (especially relative to bonds) and we continue to find promising investment opportunities."

The fund has a record-high 74 percent allocation to stocks, which reflects the managers' belief that bonds are overpriced and will likely generate minimal returns in the years to come.

Oakmark Equity & Income is a component of the Bradway Strategic Portfolio, which consists primarily of investments with top money managers.