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FPA Crescent: Contrarian Value
04/02/2014 9:00 am EST
Every year, Morningstar determines who gets their Fund Manager of the Year awards. We are happy that one fund from our mutual funds portfolio, and its manager, made the list for 2013, notes Genia Turanova in Leeb Income Performance Letter.
Rated 5-stars, as well as “gold,” FPA Crescent (US:FPACX)—led by Steven Romick since 1993—hasn’t been off the radar for Morningstar analysts and retail investors, who followed its strong performance and clear investment strategy for years.
This is why assets under management ballooned: over the last ten years, assets in the fund jumped from $915 million in 2004 to $15.3 billion in 2013.
But we are not worried. FPA Crescent’s investment style should be able to absorb these assets, as its management sees appropriate investment opportunities arise.
Right now, though, the fund holds about 40% of its total assets in cash. Why? In short, the managers question the sustainability of the rally.
“Equity values, as a percentage of GDP, are near their peaks. The only time they were higher was at the apex of the dot com bubble,” noted Steven Romick in the fourth quarter fund commentary.
It’s in the fund’s nature—and in its history—to commit capital in periods of greater volatility, and this is not the first time the fund held this much cash.
They did so from 2003 to 2007, and, as the market plummeted in 2008, the fund had the ability to invest. As a result of the combination of strict value discipline and patience, FPA Crescent’s long-term record is nearly unmatched.
In its category (moderate allocation), FPA Crescent is in the top first percentile for the last 15 years, top third percentile for the last ten-year period, top 24 and 10 for the past five- and three-year periods, respectively.
And so, this contrarian value fund remains a recommendation. Its flexible mandate allows it to hold cash, when needed, invest in equities across all market caps, industries, and geographies; buy fixed income (as defined by its moderate allocation designation) and other assets. Moreover, FPA Crescent can potentially short stocks.
The fund’s current cash position is diversified to increase exposure to commercial paper, and includes short-dated corporate and sovereign debt. Low turnover, the absence of loads, and a moderate fee, all add to the list of positives.
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