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Steven Romick's FPA Crescent Fund 1st-Quarter Commentary

Discussion of markets and holdings

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May 04, 2022
Summary
  • The FPA Crescent Fund – Institutional Class declined 3.08% in 2022’s first quarter but increased 1.70% for the trailing twelve months.
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Dear Shareholder:

Overview

The FPA Crescent Fund – Institutional Class (“Fund” or “Crescent”) declined 3.08% in 2022’s first quarter but increased 1.70% for the trailing twelve months.1 The Fund generated 14.8% of the average of the S&P 500 and MSCI ACWI NR USD’s (“MSCI ACWI”) return in the trailing twelve months, underperforming its 74.5% average net risk exposure.2 The Fund protected capital better than the illustrative indices in the first quarter participating in just 61.8% of the average decline of the two indices.

Portfolio discussion

Over the past twelve months our Chinese internet related names have been significant detractors to performance, with shares prices being negatively impacted by a cornucopia of bad news including increased regulatory scrutiny, heightened competition, a slowing economy, and most recently Covid lockdowns. On the positive side we think these headwinds are largely priced in, and our current exposure of approximately 3% affords us ownership of a collection of very good digitally enabled businesses trading at attractive valuations. Nonetheless we are cognizant of newly emerging geopolitical risks that were not on our radar several years ago, and for that reason we have not added to the positions thus far this year.

On the other hand, we have used market weakness to opportunistically build positions in what market commentators would describe as growth stocks across the United States and Europe. We don't know what the future holds over the coming three to four quarters for these names, but if we are right (and there is no guarantee we are) we think we are buying at multiples that will make these names look like value stocks on traditional metrics three to four years in the future. However, we acknowledge these companies participate in dynamic markets that result in greater degrees of uncertainty than many of our other holdings, and as such have limited concentration in any single name and to the group as a whole.

The mid-year and year-end commentaries regularly include a more robust consideration of the portfolio and the markets. We thought it would be helpful for our investors to see some notable portfolio highlights, including asset allocation details and portfolio changes, every quarter. Heretofore, we will include these highlights immediately following letter.

Closing

One closing thought.

The tragedy in Ukraine leaves us few words that haven’t already been said. Our direct exposure to Russia still stands at 0%, with indirect revenue exposure of less than 1%. This, however, bears far less relevance than the larger humanitarian crisis that continues to unfold with uncertainty. Our thoughts are with those whose families and friends live in Ukraine.

Respectfully submitted,

FPA Crescent Portfolio Managers

April 27, 2022

FPA Crescent Fund Portfolio Highlights

Performance versus Illustrative Indices3

Q1 2022

Trailing 12-month

Crescent

-3.08%

1.70%

Crescent – Long Equity

-4.64%

4.78%

MSCI ACWI NR USD

-5.36%

7.28%

S&P 500

-4.60%

15.65%

60% MSCI ACWI NR USD/40% BBg US Agg

-5.55%

2.70%

60% S&P 500/40% BBg US Agg

-5.07%

7.50%

`

Asset Allocation5

Risk Asset

Q1 2022

Q4 2021

Q1 2021

5yr Avg.

Common Stock, Long

71.5%

75.3%

72.9%

70.3%

Common Stock, Short

-0.5%

-2.5%

-3.2%

5.5%

Credit, Long

0.6%

0.2%

2.8%

4.0%

Credit, Short

0.0%

0.0%

-0.3%

-0.3%

Other

2.8%

1.8%

2.5%

1.9%

Exposure, Net

74.5%

74.8%

74.8%

70.4%

No. of Long Equity Positions

51

48

48

44

Top 10 Equity Holdings4

Portfolio Holding

Portfolio Weight

Alphabet (

GOOG, Financial)

5.9%

SPACs (various issues)

3.4%

Comcast Corp-Class A (

CMCSA, Financial)

3.3%

American International Group (

AIG, Financial)

3.0%

Analog Devices Inc (

ADI, Financial)

2.8%

Broadcom Inc (

AVGO, Financial)

2.7%

Holcim Ltd

2.7%

TE Connectivity Ltd (

TEL, Financial)

2.5%

Glencore Plc (

LSE:GLEN, Financial)

2.4%

Aon Plc (

AON, Financial)

2.2%

31.0%

Geographic Exposure (Net Equity)5

Domicile

Revenue

United States

64.7%

42.1%

International

35.3%

57.9%

Developed

30.1%

27.2%

Emerging Markets

5.2%

18.7%

Rest of World

-

11.9%

(Uncategorized)

Fund Activity6

New Positions

Increased Positions

Decreased Positions

Exited Positions

Delivery Hero (

XTER:DHER, Financial)

FPS LLC

Activision Blizzard (

ATVI, Financial)

Steenbok

Herbalife (

HLF, Financial)

SPDR S&P 500 ETF (Short)

Softbank ADR/ Softbank (Pair)

Trailing Twelve-Month Contributors and Detractors as of March 31, 20227

Contributors

Performance

Percent of

Detractors

Performance

Percent of

Contribution

Portfolio

Contribution

Portfolio

Alphabet

1.72%

5.8%

Naspers & Prosus

-1.67%

2.5%

Glencore

1.28%

2.3%

Alibaba

-0.73%

1.1%

American International Group

0.99%

2.9%

Softbank ADR/Softbank (pair trade)

-0.68%

0.8%

Broadcom

0.98%

2.8%

Meta Platforms

-0.60%

2.7%

Aon

0.79%

2.2%

Citigroup

-0.59%

2.3%

5.76%

16.0%

-4.27%

9.4%

All data on this page as of March 31, 2022 unless otherwise indicated. Source: Factset, Morningstar, Bloomberg, FPA.

Please see footnote references in the following page. Portfolio composition will change due to ongoing management of the Fund. Past performance is no guarantee, nor is it indicative, of future results. Please see the end of this Commentary for important disclosures and definitions.

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.

The 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.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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