FPA Crescent: A Flexible Favorite

08/08/2016 9:00 am EST

Focus: FUNDS

Genia Turanova

Editor, Leeb Income Performance

Here we review one of the best-rated funds in our Mutual Funds model portfolio; it carries the highest possible five-star rating from Morningstar, notes Genia Turanova, editor of Leeb Income Performance Report.

FPA Crescent Fund (FPACX) is a balanced fund that has more than its share of fans, as can be seen by its significant size. With $17 billion in assets, it’s a force in the world of balanced funds.

Fund manager Steve Romnick has been at the helm since 1993 (since 2013, he has been assisted by two co-managers), and his opinions, naturally, matter.

The fund is categorized as balanced (moderate allocation, with 50 to 70 percent equity position), and its objective is to generate equity-like returns over the long-term, take less risk than the market, and avoid permanent impairment of capital.

The fund takes a flexible approach; with a mandate to invest across all asset classes, geographies, sectors, and market capitalizations.

Most recently, US equities accounted for 47.5 percent of the portfolio, non-US stock, for 7.7 percent, bonds, 4.5 percent, and “other,” 4 percent.

The portfolio, as of the last report, was significantly overweight in financial services and technology, while underweight in defensive stocks (such as consumer defensive, healthcare, utilities).

Meanwhile the cash position, still high at 36%, could be viewed as a substitute for a fixed-income position. This makes sense: bond yields are relatively low, while risk for the loss of principal is high.

Still the fund has invested in new fixed income positions, namely in energy and basic materials, based on the weakness of those sectors.

Further, as true contrarians, in some cases, according to Romnick, the fund would even be okay with companies involved in restructuring as they expect a positive risk/return potential.

The fund’s long-term record speaks for itself: it stands in the top 2 percent of its peers for the last 15-year period.

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By Genia Turanova, Editor of Leeb Income Performance Report.

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