Dear Shareholders:
Plus ça change,plus c'est la même chose. The more things change, the more they stay the same. Suchcontinued the tale of this bull market as 2018 began. 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.
Growth continues to outperform Value in the global equity markets. The S&P 500 and MSCI ACWI Growth indexes increased 1.93% and 0.67% respectively for Q1. Their value counterparts underperformed (again), with the S&P and MSCI Value indexes each declining -3.57% and -2.62%. Cumulative underperformance since 2007 of S&P 500 Value vs Growth is approaching the historic underperformance from 1995-2000.
Portfolio Commentary
The top 5 performance detractors more than offset the benefits of the top 5 contributors.
The Naspers/Tencent trade continued to work against us in Q1, although we’ve made back the majority of its year-to-date decline thus far in April. Naspers (JSE:NPN, Financial) took advantage of Tencent’s strong share price and sold $10 billion of its Tencent shares, reducing its stake in Tencent (HKSE:00700, Financial), from 33% to 31%.
Leucadia National (Trades, Portfolio) (LUK, Financial) announced value-creating and shareholder-friendly asset sales and share repurchase plans earlier this month, allowing its stock to recapture about half its year-to-date decline. More importantly, it serves as another indication of company management’s commitment to building long-term value and acting opportunistically.
We discussed our investment in various Puerto Rican bond issues in our year-end letter. Subsequently, there have been a series of announcements that reflects a better than expected near-term cash flow on top of there being more cash in the municipal till than had been previously understood. The bonds have responded in kind and have appreciated year-to-date through the end of the quarter.
No other significant news impacted portfolio performance.
We will offer more detailed comments on the markets, economy, and investments in our portfolio in our Semi-Annual Commentary, per usual. Additionally, we will post slides from our biennial “A Day with FPA” on our website after the May 3rd event.
Respectfully submitted,
Steven Romick (Trades, Portfolio)
Portfolio Manager
April 24, 2018
- Reflects the top contributors and top detractors to the Fund’s performance based on contribution to return for the quarter and year. Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented.
