July 12, 2021 BARRON’S 25
of Minnesota and a master’s in finance
from the University of Wisconsin, was di-
rector of research at the firm from 1990 to
- Nygren was named portfolio manager
of the Oakmark Select fund (OAKLX) in
1996 and joined the Oakmark Fund in
2000 as a co-manager.
Now based in the Chicago area, he looks
for companies that “have a combination of
growth and yield to match the S&P 500.”
“This is much more a business-value
approach, where you acknowledge that
better businesses sell for higher prices than
weaker businesses do,” Nygren says. “But
still, everything is price-driven. No matter
how good the company is, if we can’t find it
available at our price, we will pass on it.”
One of the reasons he is more open to
less-traditional value stocks is his evolving
view on generally accepted accounting
principles, or GAAP. Nygren encountered
this some 30 years ago as a young analyst.
He researched cable-television companies,
some of which had negative net income.
Back then, the cost of acquiring new sub-
scribers was roughly $1,000 each. “That
was why there was that disconnect,” he
recalls. Those costs initially caused losses
on the profit-and-loss statements, but led to
more growth and profitability over time.
Long before he dealt with the nuances of
accounting, Nygren had a hodgepodge of
early influences, including investing books
by the likes of Warren Buffett and John
Templeton. Another early influence for his
investing framework came from his mother,
a discerning shopper.
“Instead of a typical weekly trip to a gro-
cery store, we would be going to three dif-
ferent grocery stores,” he says. “I learned if
Oakmark Fund
Total Return
1-Yr 5-Yr 10-Yr
OAKMX 67.4% 17.7% 14.4%
Large Value Category 43.9 12.2 10.9
Top 10 Holdings
Company / Ticker % of Assets
Alphabet / GOOGL 3.9%
Capital One Financial / COF 3.8
Ally Financial / ALLY 3.8
Facebook / FB 3.3
EOG Resources / EOG 3.0
Bank of America / BAC 3.0
Citigroup / C 2.9
Charles Schwab / SCHW 2.8
Comcast / CMCSA 2.6
Goldman Sachs Group / GS 2.5
Total 31.5%
Note: Holdings are as of June 30. Returns through July 2;
five- and 10-year returns are annualized.
Source: Morningstar;Oakmark Fundsstakes in active management shops, over-
sees $738 billion through its affiliates.
Matt Patsky, CEO of Trillium, another
sustainable investment firm, says that the
acquisition is proof of concept for sustain-
able investing. “There will be a lot more
acceptance that it’s a perfectly reasonable
way to manage money, and you’re going to
have to have an option that checks that
box,” Patsky adds.
Parnassus was the largest independent
firm in the space, and the last major inde-
pendent to hook up with a larger partner.
Some of the most venerable names in U.S.
sustainable investing have been pur-
chased by larger entities in recent years.
Calvert Research & Management was
bought in 2016 by Eaton Vance, which
was purchased by Morgan Stanley (MS)
this year.
“Sustainable investments are increas-
ingly being run by large asset managers for
whom sustainable investing is a relatively
recent focus,” Jon Hale, Morningstar’s sus-
tainability research chief, says in an email.
Allen predicts that Parnassus is likely
to tap Boston Common’s expertise as an
activist investor as it deepens engagement
with companies in its portfolios.
“Clients have a greater desire to drive
outcomes, and when you see that capital
being deployed through Parnassus, it re-
quires an active approach,” Horgen ob-
serves. “You really need engagement and
you need to continue to have an approach
that’s forward-looking.” In addition to
Parnassus and Boston Common, AMG’s
other investments in responsible investing
include a stake in Inclusive Capital Part-
ners, which is led by Jeff Ubben, a well-
known activist investor.
Hale said he expects new investment
firms to keep popping up to cater to the
appetite for sustainable investments. Con-
sider Engine No. 1, an activist investment
firm founded just last year by hedge fund
veterans. This year, Engine No. 1 won
three seats on the board of ExxonMobil
(XOM).B
grapes weren’t on sale this week, we
would buy cherries instead and wait until
grapes were on sale.” The upshot from
those shopping expeditions: “You could
make your money go a lot further.”
Nygren is doing just that with APA
(APA), an energy holding company. Its
subsidiaries include Apache, an oil-and-
gas exploration-and-production company.
The stock’s enterprise value is roughly five
times its estimated 2022 earnings before
interest, taxes, depreciation, and amorti-
zation, or Ebitda, according to FactSet.
A key consideration, Nygren says, is
that Apache has extensive exploration
operations off the coast of Suriname in
South America. As he sees it, “You are
either paying a fair price for Apache’s
existing operations, or you are paying a
fair price for Suriname and you are get-
ting the existing operations for free.”
Nygren, for all of his success, hasn’t
nailed every call. One misstep occurred
heading into the financial crisis of 2007
and 2008 when “we had been too heavily
invested in financials.” Today, however, as
many financials boast strong capital levels
and sound balance sheets, the sector
makes up the fund’s biggest allocation, at
about 35% of the portfolio as of March 31.
The fund manager maintains that No. 7
holding Citigroup (C) is undervalued and
trades at a steeper-than-usual discount to
the broader market. The company, under
relatively new CEO Jane Fraser, has an
opportunity to unload some underper-
forming units and use the proceeds to buy
back its undervalued stock, he says.
A family vacation to Las Vegas in the
late 1960s offered another important in-
vesting lesson. His father took him and his
brother into a grocery store and put some
nickels into a slot machine there, where it
threw off more change. That ran counter
to his father’s warning about gambling.
“I knew my dad was a smart guy, and I
had this conflict to resolve in my head
between this machine that was spitting
out free money and my dad saying it was
so stupid to gamble,” recalls Nygren. That
eventually led to “a fascination with un-
derstanding how bets work,” he adds.
One bet that Nygren has plenty of faith
in is Oakmark’s No. 4 holding, Facebook.
The social-media giant’s stock recently
traded at around 23 times FactSet’s 2022
consensus profit estimate of $15.29 a share.
However, Nygren subtracts the company’s
extensive cash position and makes adjust-
ments for its other assets, like the popular
messaging app WhatsApp.
By his calculations, “We are getting the
nonearning assets, including the cash, for
free,” he says. Spoken like a true eclectic
value investor.B
FUNDS
Parnassus, Last Big ESG
Firm, Sells Majority Stake
S
ustainable investing is red-hot. For
the most recent evidence, look at
last week’s acquisition news: Affil-
iated Managers Group paid $600
million for a majority stake in privately held
Parnassus Investments, which sent Affili-
ated’sstock(ticker:AMG)upasmuchas
7% on the day the deal was announced.
“We see ESG investing as one of the
fastest-growing segments in the industry,”
AMG chief Jay Horgen tells Barron’s , “and
one of the fastest-growing segments of
AMG.” ESG refers to investing that in-
cludes environmental, social, and gover-
nance criteria, along with traditional fi-
nancial metrics.
“Parnassus is really ahead of that trend,
given its authenticity and length of history
in that space,” Horgen adds. Parnassus,
founded in San Francisco in 1984 by star
investor Jerome Dodson, has grown swiftly
in recent years, as interest in sustainable
investing has strengthened and as the firm
has developed a reputation for reliably
good performance. It has $47 billion in
assets, including five mutual funds.
While manager changes often follow
acquisitions, investors in Parnassus funds
can take heart from the fact that CEO Ben
Allen and chief investment officer Todd
Ahlsten both have long-term contracts with
the firm, as will key portfolio management
personnel, AMG says. Dodson, 78, stepped
down from his fund management duties at
the end of 2020. Dodson was one of just a
handful of managers who consistently beat
the market, for decades.
Says Allyson McDonald, CEO of Boston
Common Asset Management, a sustain-
able investment shop 15% owned by AMG:
“AMG will let Parnassus continue to be
Parnassus. That’s a good sign.”
The addition of Parnassus will bring
AMG’s ESG-dedicated assets to $80 bil-
lion, and assets incorporating ESG factors
in their investment process to $600 billion,
AMG says. The company, which buys
By Leslie P. Norton