Dear Shareholder:
Performance Overview
The FPA Crescent Fund – Institutional Class (“Fund” or “Crescent”) gained 5.76% in Q1 2023, but declined 0.91% in the trailing twelve months.1 The Fund captured just 12.2% of the MSCI ACWI NR’s (“MSCI ACWI”) decline in the trailing twelve months, outperforming its 74.1% average net risk exposure.2
Below you can see the Fund’s performance along with various relevant indexes.
Exhibit A: Performance versus Illustrative Indices3
| Q1 2023 | Trailing 12-month | |
| Crescent | 5.76% | -0.91% |
| Crescent – Long Equity | 8.13% | -3.92% |
| MSCI ACWI | 7.31% | -7.44% |
| S&P 500 | 7.50% | -7.73% |
| 60% MSCI ACWI / 40% BBg US Agg | 5.57% | -6.14% |
| 60% S&P 500 / 40% BBg US Agg | 5.67% | -6.25% |
Portfolio discussion
The recent regional bank turmoil did not have much of an impact on the portfolio, and as you can see in the following table the Fund’s financial exposure had little impact on performance.
Exhibit B: Trailing Twelve-Month Contributors and Detractors as of March 31, 20234
| Contributors | Perf. | Avg. % | Detractors | Perf. | Avg. % |
| Cont. | of Port. | Cont. | of Port. | ||
| FPS (shipping investment) | 1.24% | 2.5% | Alphabet | -1.71% | 5.0% |
| Holcim Ltd | 1.12% | 3.1% | Charter Communications | -0.81% | 1.8% |
| Interest Rate Caps (multiple) | 0.80% | 0.4% | Amazon.com | -0.79% | 1.7% |
| Sound Holding (shipping investment) | 0.75% | 0.9% | Comcast | -0.59% | 3.0% |
| Analog Devices | 0.67% | 2.9% | AIG | -0.47% | 2.7% |
| 4.59% | 9.8% | -4.37% | 14.1% |
In the last twelve months, Crescent’s top five performers contributed 4.56% to its return, while its bottom five detracted 4.37%.
Of the contributors and detractors listed, we have discussed all but two in our commentaries in the last year: Holcim and Analog Devices.
Holcim (XSWX:HOLN, Financial), a global building materials company with a concentration in cement, concrete, and aggregates,continued its business transformation over the past year. Successful exits from India and Brazil, combined with its strong operating performance, have allowed Holcim to fund acquisitions in North America` and Europe, initiate a share buyback, increase its dividend, and continue to improve its rock-solid balance sheet.5 We remain impressed by management's operating performance and strategic actions, and the company continues to trade at what we believe is an undemanding multiple of normal cash earnings.
Analog Devices' (ADI, Financial) stock price declined in the first half of 2022, along with its semiconductor peers.That sector has since rebounded, lifting ADI with it. We believe ADI is a well-run company and a secular grower, which should augur well for its future. However, given that it operates in a cyclical industry, we will not be surprised when its shares periodically trade down.
Closing
The world does not change each quarter as much as stock price movements might otherwise suggest, often reacting more to media headlines than to a realistic assessment of future probabilities. Therefore, we reserve our more extended commentaries twice annually, for the second quarter and year-end. In the interim, we will continue to steward your capital with the same care as we have for thirty years this June.
Respectfully submitted,
FPA Crescent Portfolio Managers
April 27, 2023
1 Effective September 4, 2020, the previous single class of shares of the Fund was renamed the Institutional Class shares. Unless otherwise noted, all data herein is representative of the Institutional Share Class.
2Risk assets are any assets that are not risk free and generally refers to any financial security or instrument, such as equities, commodities, high-yield bonds, and other financial products that are likely to fluctuate in price. Risk exposure refers to the Fund’s exposure to risk assets as a percent of total assets. The Fund’s net risk exposure as of March 31, 2023 was 71.2%.
3Comparison to the indices is for illustrative purposes only. The Fund does not include outperformance of any index or benchmark in its investment objectives. An investor cannot invest directly in an index. The long equity segment of the Fund is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. Long equity holdings only includes equity securities excluding paired trades, short-sales, and preferred securities. The long equity performance information shown herein is for illustrative purposes only and may not reflect the impact of material economic or market factors. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Long equity performance does not represent the return an investor in the Fund can or should expect to receive. Fund shareholders may only invest or redeem their shares at net asset value.
4Reflects the top five contributors and detractors to the Fund’s performance based on contribution to return for the trailing twelve months (“TTM”). Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. Percent of portfolio reflects the average position size over the period. The information provided does not reflect all positions purchased, sold or recommended by FPA during the quarter. A copy of the methodology used and a list of every holding’s contribution to the overall Fund’s performance during the TTM is available by contacting FPA Client Service at [email protected]. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities listed.
5 Source: Holcim. https://www.holcim.com/media/media-releases/india-divestment-closing; https://www.holcim.com/media/media-releases/brazil-divestment-closing; https://www.holcim.com/media/media-releases/holcim-acquires-us-aggregates-business; https://www.holcim.com/media/media-releases/holcim-acquires-indar-mexico; https://www.holcim.com/media/media-releases/share-buyback-program; https://www.holcim.com/investors/shareholder-information/dividend-history.
This Commentary is for informational and discussion purposes only and does not constitute, and should not be construed as, an offer or solicitation for the purchase or sale with respect to any securities, products or services discussed, and neither does it provide investment advice. Any such offer or solicitation shall only be made pursuant to the Fund’s Prospectus, which supersedes the information contained herein in its entirety. This presentation does not constitute an investment management agreement or offering circular.
Any views expressed herein and any forward-looking statements are as of the date of the publication and are those of the portfolio management team and are subject to change without notice. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments. This information and data have been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data.
Portfolio composition will change due to ongoing management of the Fund. References to individual securities or sectors are for informational purposes only and should not be construed as recommendations by the Fund, the portfolio managers, the Adviser, or the distributor. It should not be assumed that future investments will be profitable or will equal the performance of the security or sector examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at www.fpa.com.
