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FPA Crescent Fund Q1 2018 Commentary

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  • Includes detailed analysis of FPA Crescent Fund's positions in LUK, TCEHY, NAPRF, NPSNY.
  • With a January increase of 5.73%, the S&P 500 rose for its 15th consecutive month, breaking its record set in December. February and March reversed the historic trend, declining -6.08% causing the S&P 500 to end the quarter down -0.76%. The MSCI ACWI declined –0.96% for the first quarter.
  • The FPA Crescent Fund declined similarly, -0.98% for the period.

FPA Crescent Fund

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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Comments (11)

Their largest position is AIG which will take a big hit at the open tomorrow on another earnings miss.
What is their expense ratio again? North of 1% a year?
boycehomes profile picture
Does anyone have any info on Tcehy? Thinking of Buying Tcehy but seen it's cayman Islands based B shares. Am I right in thinking there are no voting rights and you are not getting a piece of the actual company with these shares?

Would value your opinions
Unsure of where you saw it as Cayman island based shares... TCEHY is an ADR for Tencent Holdings. As an ADR, It's my understanding that you don't get voting rights as technically you don't own the actual company (1 share of TCEHY = 1 share of Tencent held by a US company based in China). But for all intents & purposes you own shares in Tencent. It's just a way for US investors to buy foriegn stocks.

They've been on my radar for a while now, have been waiting for the price to come back a little....
boycehomes profile picture
Thanks for the info.!
I saw the Cayman Islands listed on the share info when I was about to place the order on TDAmeritrade.
Yes I like the company a lot. Wondering how they will hold up if a recession hits America? Would it be a hold under those circumstances
Good question but hard to really know - arguments could be made on both sides. A recession would hurt everyone. A few reasons they'd not hold up well at all = Growth stock, high PE, Tech industry, potential trade impacts (Trump).
A few reasons they'd be ok = Revenues from China (less affected by US consumer spending), big moat around their products (e.g WeChat) and quite a lot of diversification these days.

In general, I'd guess that their stock price would get hit very very hard by a recession...but they are a name I would buy & hold for a very long time
User 47732154 profile picture
Um. I hope you are trolling, ChuckXX. Yes, let's look at its track record together...
The fund has never lost money over a single 60-month period (5 years) since inception in 1993. In its soon to be 25 year history (with same manager in Romick), it has NEVER underperformed the S&P 500 over a single rolling five year period WHEN (key word) the SP500 has been annualizing 10% or less per year.
On the flip-side, it has equally NEVER outperformed the SP500 over a five year time horizon when the index has performed over 10% per year. You are comparing the fund to only a robust market experience--that is not objective.
And guess what? The market does 10% or less way the heck more than what we have all seen in the past five years.
I have the numbers in front of me. Specifically and apples-to-apples: the SP500 was annualizing over 10% from 1993 through 2002 (9 years), from mid 2007 to early 2008 (0.75 years), and from 3Q13 through today (4.75 years). Add that up = 14.5 years, or 58% of the time.
You might say, 'well, what the heck - almost 60% of the time you should own the SP500 versus FPACX...?'
That's not psychologically true in my opinion because the periods when the SP500 sucks it really sucks and human behavior breaks down: you made zero money owning the index from mid 2002 through 1Q2006 (3.25 years), and you made zero money owning the index from 3Q2008 through really much of anything in 2011 and 2012 as you were just recovering (another 3-4 years). There are no articles in those periods saying, "Hey just chill out, the market will recover in years from now..."
That means the stock market was straight up garbage for 6-to-8 years of the 25 year sample period. That is 25-32% of the time. And who has the fortitude to sit there for up to a third of the time when the index blows? FPA over those same time periods made a lot of money. Let's look at the worst five year period of all: Feb 2004 through Feb 2009, for example, you would have lost 29.05% or 6.63% over five years, annualized. That is versus +5.58% or +1.09% per year in FPACX. the 2002-2006 period is even a better example.
You might say, "why five year periods?" Well, because the average holding period of an investment in this fund has historically been the greater portion of a market cycle (7-8 years) and therefore performance should be viewed--at a minimum--of five years.
In short: with value managers you get your outperformance when the market goes down, not up. For a conservative investor this is a decent way to get some market exposure without being unruly; and with higher risk investors (perhaps you), this is a great risk-manager to taper the overall vol and get you a better flavor.
Hope that helps, -ajm
Comparing FPACX with the S&P500 is oranges to apples anyway because FPACX tends to allocate less than 60% to equity, with cash & bonds usually making up the balance.


It's a completely different approach in terms of risk.
User 47732154 profile picture
I have known Romick and his team for over a decade now--gone out to their office, them to mine, etc. Steve has said himself that he aims to give you SP500 returns with a fraction of the risk over time. They look at S&P all the time: the bonds they own are really because they can get equity returns from (like now they own a lot of Puerto Rico muni paper); still meeting the mandate.

They also now offer a fully invested LP product now for qualified investors. Feel free to contact their office on that. Take a look at that it is really compelling.
User 47..., you should comment more. Valuable observations! I'm a fairly longtime holder of Crescent and it was very good to be reminded of the useful function this fund can have in a portfolio.
If I recall correctly, the first decade of this century was basically flat for the S&P and FPACX did quite well.
ChuckXX profile picture
Not a fund I would be buying. Look at its track record. It can't even beat the S&P 500 .
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