Steven Romick manages the FPA Crescent Fund (FPACX). The fund was started by himself in 1993 and for the past 17 years, it averaged a 11.2% per year, compared to the stock market’s return of 7.9%. Considering that the fund looks for opportunities across the asset class: stock, fixed income, cash, and even short positions. What is remarkable is that he achieved the return with an average cash level of mid-twenty percent, and stocks have averaged less than 50% of the Fund’s assets, as he disclosed in the latest Letter to Shareholders.
Performance
His year-by-year performance since inception is as follows. One can see that the years during which he underperformed the market during the late 1990’s, and he outperformed the market even more in early 2000’s.
As he stated in the Letter to the Shareholders:”We would rather take the chance (of missing the gain) than risk waking up one morning and finding our shared portfolio value missing too manage digits.” And on his objective, he said, it is “to continue to deliver our returns while providing our clients with lower volatility than the market and most equity funds”. Indeed, his performance during the past 17 years is much more smooth than the market overall.
Current Outlook on Economy
In the Letter to Shareholders, Romick expressed his doubts towards the sustainability of the Fed fueled economic recovery:
Further, he is skeptical towards the fed and state government, and he do not believe our government has our best long-term interests at heart.
Recent Morningstar Interview
Romick was interviewed by Morningstar recently in early May, 2010, right after the “Flash Crash” of May 6, 2010. In the interview, Steve Romick said it's simply harder to find great risk-reward opportunities in today's market. FPA Crescent manager Steve Romick said he expects continued growth deceleration after the Fed stimulus measures wear off.
Short Positions
Steven Romick can go both long and short, rather unique among the value-oriented investment managers. As of March 31, 2010, these are his short positions:
Verizon Communications Inc. (VZ, Financial)
Verizon Communications, formed by the merger of Bell Atlantic and GTE, is one of the world's largest providers of communications services. Verizon Communications Inc. has a market cap of $78.07 billion; its shares were traded at around $27.49 with a P/E ratio of 11.8 and P/S ratio of 0.7. The dividend yield of Verizon Communications Inc. stocks is 6.9%. Verizon Communications Inc. had an annual average earning growth of 2.3% over the past 10 years.
Romick shorted a total of 735,000 shares of this stock as of March 31, 2010, 58% more than a quarter ago. His holding history of this stock is as follows:
AvalonBay Communities Inc. (AVB, Financial)
AvalonBay Communities, Inc. is a real estate investment trust. Avalonbay Communities Inc. has a market cap of $7.55 billion; its shares were traded at around $92.56 with a P/E ratio of 22.5 and P/S ratio of 8.9. The dividend yield of Avalonbay Communities Inc. stocks is 3.9%.
Romick shorted a total of 100,400 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Essex Property Trust Inc. (ESS, Financial)
Essex Property Trust Inc. is a self-administered and self-managed real estate investment trust, engaged in the acquisition, refurbishing, marketing, leasing, management, development and construction of multifamily residential and retail properties. Essex Property Trust Inc. has a market cap of $2.97 billion; its shares were traded at around $102.86 with a P/E ratio of 20.1 and P/S ratio of 7.2. The dividend yield of Essex Property Trust Inc. stocks is 4%. Essex Property Trust Inc. had an annual average earning growth of 6.1% over the past 10 years.
Romick shorted a total of 87,900 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust is an owner, operator & redeveloper ofretail properties. Federal Realty Investment Trust has a market cap of $4.27 billion; its shares were traded at around $69.67 with and P/S ratio of 8. The dividend yield of Federal Realty Investment Trust stocks is 3.8%. Federal Realty Investment Trust had an annual average earning growth of 2% over the past 10 years.
Romick shorted a total of 106,800 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Health Care Property Investors Inc. (HCP, Financial)
Health Care Property Investors, Inc. is a real estate investment trust. Health Care Property Investors Inc. has a market cap of $8.97 billion; its shares were traded at around $30.54 with a P/E ratio of 17.7 and P/S ratio of 7.8. The dividend yield of Health Care Property Investors Inc. stocks is 6.1%.
Romick shorted a total of 225,600 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Conclusion
Steven held a lot of cash at the end of 1Q2010, waiting for the market to present better opportunities. He has several short positions and most of them are Real Estate Investment Trust (REIT) companies.
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Performance
His year-by-year performance since inception is as follows. One can see that the years during which he underperformed the market during the late 1990’s, and he outperformed the market even more in early 2000’s.
Performance of FPA Crescent Fund
| Year | Return (%) | S&P500 (%) | Excess Gain (%) |
|---|---|---|---|
| 2009 | 29.65 | 26.5 | 3.1 |
| 2008 | -20.6 | -37 | 16.4 |
| 2007 | 6.8 | 5.61 | 1.2 |
| 2006 | 12.4 | 15.79 | -3.4 |
| 2005 | 10.8 | 4.91 | 5.9 |
| 2004 | 10.2 | 12 | -1.8 |
| 2003 | 26.2 | 28.7 | -2.5 |
| 2002 | 3.7 | -22.1 | 25.8 |
| 2001 | 36.1 | -11.9 | 48.0 |
| 2000 | 3.6 | -9.1 | 12.7 |
| 1999 | -6.3 | 21 | -27.3 |
| 1998 | 2.8 | 28.6 | -25.8 |
| 1997 | 22 | 33.4 | -11.4 |
| 1996 | 22.9 | 23 | -0.1 |
| 1995 | 26 | 37.6 | -11.6 |
| 1994 | 4.3 | 1.3 | 3.0 |
As he stated in the Letter to the Shareholders:”We would rather take the chance (of missing the gain) than risk waking up one morning and finding our shared portfolio value missing too manage digits.” And on his objective, he said, it is “to continue to deliver our returns while providing our clients with lower volatility than the market and most equity funds”. Indeed, his performance during the past 17 years is much more smooth than the market overall.
Current Outlook on Economy
In the Letter to Shareholders, Romick expressed his doubts towards the sustainability of the Fed fueled economic recovery:
The Fed is doing its best to reflate — or is it ignite? There continues to be excellent economic data being reported both here and abroad, and the stock market has reacted favorably. The question remains: What is sustainable growth? The U.S. government’s omnipresence has revealed itself in its transfer of private liabilities to the public sector, and becoming a giant liquidity machine, the lender of last resort, a guarantor of mortgages and more, a provider of jobs, a purchaser of MBS and ABS, grantor of transfer payments, tax credits, and tax cuts….
What next? A utopian view suggests that the private sector picks up the slack as the government retrenches. A utopian Aldous Huxley we are not. It is not merely difficult for us to determine where the U.S. economy stands—it is impossible (at least for us).
We have a host of questions to which we do not know answers.
- When will the Fed begin asset sales? It is not a question of “if,” but “when” the Fed begins its asset sales. Too soon could further undermine housing. Too late could create another easy-credit asset bubble and set the stage for inflation and/or a weak economy.
- How long can spending grow faster than incomes?
- How much of a negative impact will higher state and local taxes have on GDP?
- Can we have much more than mediocre growth once the bounce-back benefits dissipate?
- How long, and to what extent, will deleveraging continue to subvert growth? (We’re guessing years.)
- Will private liabilities continue to become public sector responsibilities?
Further, he is skeptical towards the fed and state government, and he do not believe our government has our best long-term interests at heart.
Recent Morningstar Interview
Romick was interviewed by Morningstar recently in early May, 2010, right after the “Flash Crash” of May 6, 2010. In the interview, Steve Romick said it's simply harder to find great risk-reward opportunities in today's market. FPA Crescent manager Steve Romick said he expects continued growth deceleration after the Fed stimulus measures wear off.
Short Positions
Steven Romick can go both long and short, rather unique among the value-oriented investment managers. As of March 31, 2010, these are his short positions:
| Symbol | Price ($) | Number of Shares | Percentage of (%) | Quarterly Change (%) |
|---|---|---|---|---|
| VZ | 27.49 | -735,000 | -1.46 | 57.69 |
| AVB | 92.56 | -100,400 | -0.56 | 0 |
| ESS | 102.86 | -87,900 | -0.51 | 0 |
| FRT | 69.67 | -106,800 | -0.5 | 0 |
| HCP | 30.54 | -225,600 | -0.48 | 0 |
Verizon Communications Inc. (VZ, Financial)
Verizon Communications, formed by the merger of Bell Atlantic and GTE, is one of the world's largest providers of communications services. Verizon Communications Inc. has a market cap of $78.07 billion; its shares were traded at around $27.49 with a P/E ratio of 11.8 and P/S ratio of 0.7. The dividend yield of Verizon Communications Inc. stocks is 6.9%. Verizon Communications Inc. had an annual average earning growth of 2.3% over the past 10 years.
Romick shorted a total of 735,000 shares of this stock as of March 31, 2010, 58% more than a quarter ago. His holding history of this stock is as follows:
AvalonBay Communities Inc. (AVB, Financial)
AvalonBay Communities, Inc. is a real estate investment trust. Avalonbay Communities Inc. has a market cap of $7.55 billion; its shares were traded at around $92.56 with a P/E ratio of 22.5 and P/S ratio of 8.9. The dividend yield of Avalonbay Communities Inc. stocks is 3.9%.
Romick shorted a total of 100,400 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Essex Property Trust Inc. (ESS, Financial)
Essex Property Trust Inc. is a self-administered and self-managed real estate investment trust, engaged in the acquisition, refurbishing, marketing, leasing, management, development and construction of multifamily residential and retail properties. Essex Property Trust Inc. has a market cap of $2.97 billion; its shares were traded at around $102.86 with a P/E ratio of 20.1 and P/S ratio of 7.2. The dividend yield of Essex Property Trust Inc. stocks is 4%. Essex Property Trust Inc. had an annual average earning growth of 6.1% over the past 10 years.
Romick shorted a total of 87,900 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust is an owner, operator & redeveloper ofretail properties. Federal Realty Investment Trust has a market cap of $4.27 billion; its shares were traded at around $69.67 with and P/S ratio of 8. The dividend yield of Federal Realty Investment Trust stocks is 3.8%. Federal Realty Investment Trust had an annual average earning growth of 2% over the past 10 years.
Romick shorted a total of 106,800 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Health Care Property Investors Inc. (HCP, Financial)
Health Care Property Investors, Inc. is a real estate investment trust. Health Care Property Investors Inc. has a market cap of $8.97 billion; its shares were traded at around $30.54 with a P/E ratio of 17.7 and P/S ratio of 7.8. The dividend yield of Health Care Property Investors Inc. stocks is 6.1%.
Romick shorted a total of 225,600 shares of this stock as of March 31, 2010. Click here to access the Romick’s full holding history of this stock.
Conclusion
Steven held a lot of cash at the end of 1Q2010, waiting for the market to present better opportunities. He has several short positions and most of them are Real Estate Investment Trust (REIT) companies.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Steven Romick for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
