Equities

International equities: Positioning through Q1 volatility

June 02, 2026 - 3 min

Partner, Deputy Chairman, Portfolio Manager and Co-Chief Investment Officer – International Equities – Harris | Oakmark

Partner, Chairman, Portfolio Manager and Co-Chief Investment Officer – International Equities – Harris | Oakmark

Most common question we get is, what happened in Q1? This was kind of, it didn't feel like a quarter where the benchmark was down less than 1%. It felt a lot different than that. There was three distinct parts to this quarter.

The first part was January, it was nicely up, steady as she goes, portfolio kept up, not much going on. Then February-- very early February, 2nd or 3rd, Claude comes out with a new model-- that's Anthropic's model, and the market instantly decides it's going to price winners and losers in AI. That started to have an impact on the portfolio and our relative performance.

And then in March, right at the beginning, bombs start flying in Iran and we're at war. And again, another, but different impact on the portfolio in the quarter. And what does that mean? This dispersion really spiked in the quarter, and that's why it felt so different. Usually in big down markets, you see large spikes in dispersion. In this one, it was a pretty flat market, but dispersion spiked.

So there was the haves and have-nots is what that means. And the common metric is the top 10% performers and the bottom 10% performers, what's the difference in their performance? And that's what this slide is showing. It was an unusual period where the market didn't do much. Overall, the benchmarks didn't do much. But within the benchmark, there was a lot of noise. And we wrote about noise this quarter in the letter. So that's a picture of what happened in Q1.

And then lastly, we get the question, what about energy? It's not a big component of the index, but it had a huge impact in the quarter. And what this slide attempts to show is how energy-- the price of energy stocks compare to a more rational view of the future of energy prices, which is a three-year future, 36-month future on a rolling basis.

What this is the stocks for the European ETF for oil and gas companies divided by the price of oil three years forward, which is a more stable interpretation of oil prices. And you can see what happened in the first quarter, it clearly stands out. It used to be you could get roughly 2 barrels of oil for every ETF dollar, and today, you can only get one. That's not a good deal.

And unless the futures market is completely wrong about a 60-ish-dollar long-term price for oil, energy stocks today are way out of bounds with where they normally are relative to a longer-term oil price.

While momentum driven areas continued to lead index returns, many fundamentally strong businesses (particularly in sectors such as software and financials) experienced sharp declines, improving their valuations. Harris leaned into this dislocation during the quarter, increasing portfolio activity to upgrade business quality while maintaining a meaningful valuation discount versus major benchmarks.

They also shared perspective on longer term portfolio construction, noting that elevated index concentration and historically wide valuation spreads may have implications for forward returns. The team reiterated their focus on intrinsic value, free cash flow generation, and business fundamentals (rather than index composition) as they continue to identify selective opportunities in today’s market environment.

Key takeaways

Q1 market performance was not driven by a rebound in low P/E stocks, despite strong Russell 1000 Value^® Index results.
Index construction has led higher multiple stocks to play an outsized role in “value” benchmark performance.
Wide dispersion across sectors and stocks is creating opportunities for active value managers.
Harris | Oakmark increased portfolio activity in Q1 to take advantage of valuation dislocations.
The team remains focused on intrinsic value, free cash flow, and long term fundamentals.

The S&P 500^® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the author and Harris Associates L.P. as of April 2026 and are subject to change without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate.

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