According to GuruFocus top 10 holdings data, FPA Crescent Fund manager Steven Romick (Trades, Portfolio)’s top five holdings as of the third quarter are Naspers Ltd. (JSE:NPN, Financial), American International Group Inc. (AIG, Financial), Arconic Inc. (ARNC, Financial), United Technologies Corp. (UTX, Financial) and CIT Group Inc. (CIT, Financial).
Managing a portfolio of 58 stocks, Romick seeks value in all aspects of a company’s business structure, including stocks and bonds. The manager invests in out-of-favor companies trading at low price-earnings ratios: as a long-term investor, Romick looks at a long-term valuation parameter close to Robert Shiller’s cyclically-adjusted price-earnings ratio. As of Friday, the U.S. market Shiller price-earnings ratio is 29.2, approximately 72.8% higher than the historical mean of 16.9. Based on this market valuation level, the expected market return over the next eight years is -1.5%.
Romick said in his shareholder letter the FPA Crescent Fund returned 4.15% for the quarter, approximately in line with the returns of the Standard & Poor’s 500 value index and the MSCI ACWI Value index. The former returned 5.86% while the latter returned 3.98%. Despite this, growth indexes still outperformed value indexes, with the S&P 500 growth index returning 9.28% and the MSCI ACWI Growth index returning 4.56%
The $10.93 billion equity portfolio’s top two sectors are financial services, which represents 34.81% of the portfolio, and technology, which represents 30.93%.
Naspers
Naspers, a South African online media company, represents 5.11% of the equity portfolio.
Naspers operates several e-commerce platforms, including online retail, payments and services, video entertainment and print. GuruFocus ranks the company’s profitability 6 out of 10: even though revenues and profit margins have declined over the past three to five years, Naspers’ return on assets is near a 10-year high of 39.99% and outperforms 86% of global competitors.
Other gurus with holdings in Naspers include David Herro (Trades, Portfolio) and Bestinfond (Trades, Portfolio).
American International Group
American International Group, a major diversified insurance company, represents 4.75% of the equity portfolio.
GuruFocus ranks the New York-based company’s financial strength 4 out of 10 on several weak indicators, including a cash-to-debt ratio of 0.08 and a debt-to-equity ratio of 0.59, both underperforming over 80% of global competitors. Despite low financial strength, AIG has a dividend yield near a five-year high and a price-book ratio near a five-year low.
Arconic
Arconic, a Pittsburgh-based diversified industrial company, represents 3.91% of the equity portfolio.
The former Alcoa Corp. (AA, Financial) spinoff manufactures value-added aluminum and specialty metals products for a wide variety of industrial end markets, including aerospace and defense, building and construction and automobiles. GuruFocus ranks the company’s profitability 4 out of 10: although its operating margins are outperforming 62% of global competitors, Arconic’s net margin and return on assets underperform over 85% of global diversified industrial companies.
United Technologies
United Technologies, a combined holding of activist investors Bill Ackman (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio), represents 3.87% of Romick’s equity portfolio.
GuruFocus ranks the Farmington, Connecticut-based company’s profitability 7 out of 10 on several positive indicators, which include a four-star business predictability rank and a Joel Greenblatt (Trades, Portfolio) return on capital that outperforms 94% of global aerospace and defense companies.
CIT Group
CIT Group, a New York-based regional bank, represents 3.67% of the equity portfolio.
CIT Group provides financing, leasing and advisory services to middle-market companies in a diverse group of industries. Although the regional bank’s financial strength and profitability both rank a modest 4 out of 10, GuruFocus lists four positive investing signs for CIT Group: a dividend yield near a two-year high, a price-earnings ratio near a two-year low, a price-book ratio near a two-year low and a price-sales ratio near a five-year low.
Disclosure: No positions.
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