Dear Shareholders:
The FPA Crescent Fund (“the Fund”) returned 3.37% in the first quarter of 2017. This compares to the 6.07% return of the S&P 500 in the period and the 6.91% return of the MSCI ACWI index.
The first quarter was a strong one for global markets and the equity portion of our portfolio participated. The Fund’s top five performing positions added 2.08% to our return while the bottom five detracted -0.49%.
Unlike the financial sector that dominated Crescent’s 2016 returns, there wasn’t any one sector that was an unusual driver of performance year to date. However, Arconic (ARNC, Financial) was one company that did stand out, increasing 42.41% in the quarter, which added 0.73% to the Fund’s first-quarter return.
Arconic’s recent stock price performance was neither a function of great industry fundamentals nor of the company successfully executing on plan. It was more a function of Elliott Management Corp., an activist investor, seeking a change in leadership.1 We would view such a change favorably as well.
My partner and co-portfolio manager, Brian Selmo, recently authored a letter to Arconic’s Board of Directors, expressing our disappointment with both the company’s board and management given their collective failure to manage the business and deliver shareholder value. Their destructive action (and inaction) left us little alternative but to publicly voice our opinion. That letter is available on our website: www.fpafunds.com.2
AIG (AIG, Financial)’s fourth quarter results were disappointing, which caused its stock price to decline -3.44% in the first quarter, detracting -0.12% from performance in the period. However, AIG’s share price has increased slightly more than 20% in the trailing twelve month period. The company took an additional reserve to account for poorly underwritten Property & Casualty policies. Nevertheless, we were heartened to see that the board held management accountable and removed the CEO responsible. We continue to hold our AIG stake that trades at just 0.83x tangible equity.
A more encompassing shareholder letter about Crescent and the markets in general will be published midyear.
Respectfully submitted,
Steven Romick (Trades, Portfolio)
Portfolio Manager
April 10, 2017
- http://newarconic.com/
- http://www.fpafunds.com/docs/special-commentaries/arconic-board-letter---feb-2017.pdf?sfvrsn=2
