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.
Top Holding
No. 1: ENSCO International Inc. (ESV, Financial), Weightings: 8.75% - 3,050,000 Shares
Ensco International plc, formerly ENSCO International Incorporated, is a provider of offshore contract drilling services to the international oil and gas industry. Ensco International Inc. has a market cap of $5.56 billion; its shares were traded at around $38.99 with a P/E ratio of 7.8 and P/S ratio of 2.9. The dividend yield of Ensco International Inc. stocks is 0.3%. Ensco International Inc. had an annual average earning growth of 23.9% over the past 10 years. GuruFocus rated Ensco International Inc. the business predictability rank of 3.5-star.
Covidien PLC, formerly Covidien Ltd, is engaged in the development, manufacture and sale of healthcare products for use in clinical and home settings. Covidien Ltd. has a market cap of $20.88 billion; its shares were traded at around $41.75 with a P/E ratio of 13 and P/S ratio of 2. The dividend yield of Covidien Ltd. stocks is 1.7%.
Romick bought 150,000 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Aon Corporation is a holding company whose operating subsidiaries carry onbusiness in three distinct segments: insurance brokerage and other services; consulting; and insurance underwriting. Aon has a market cap of $10.35 billion; its shares were traded at around $38.78 with a P/E ratio of 12.1 and P/S ratio of 1.4. The dividend yield of Aon stocks is 1.5%. Aon had an annual average earning growth of 3.9% over the past 10 years.
Romick bought 576,300 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Vodafone AirTouch Plc is the world's largest international mobile communications firm. Vodafone Group Plc has a market cap of $100.78 billion; its shares were traded at around $19.16 with and P/S ratio of 1.6. The dividend yield of Vodafone Group Plc stocks is 6.6%.
Romick bought 1.38 million shares of this stock. Click here to access Romick’s complete holding history of this stock.
PETSMART, INC. is an operator of superstores specializing in pet food, supplies and services in the United States. Petsmart Inc. has a market cap of $3.76 billion; its shares were traded at around $31.18 with a P/E ratio of 18.4 and P/S ratio of 0.7. The dividend yield of Petsmart Inc. stocks is 1.3%. Petsmart Inc. had an annual average earning growth of 26.9% over the past 10 years. GuruFocus rated Petsmart Inc. the business predictability rank of 2.5-star.
Romick bought 130,000 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Occidental Petroleum Corp. explores for, develops, produces and markets crude oil and natural gas and manufactures and markets a variety of basic chemicals. Occidental Petroleum Corp. has a market cap of $64.11 billion; its shares were traded at around $78.94 with a P/E ratio of 17.1 and P/S ratio of 4.2. The dividend yield of Occidental Petroleum Corp. stocks is 1.7%. Occidental Petroleum Corp. had an annual average earning growth of 13.6% over the past 10 years.
Romick bought this sock as a new position for the quarter.
In his recent Letter to Shareholders, Romick provided a detailed discussion on this stock:
Conclusion
Despite his pessimistic view toward the stock market, Investment Guru Steven Romick has added position to several of his top holdings. He seems to like Oil & Gas company and a few of his top holdings operates in that sector.
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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.
Top Holding
No. 1: ENSCO International Inc. (ESV, Financial), Weightings: 8.75% - 3,050,000 Shares
Ensco International plc, formerly ENSCO International Incorporated, is a provider of offshore contract drilling services to the international oil and gas industry. Ensco International Inc. has a market cap of $5.56 billion; its shares were traded at around $38.99 with a P/E ratio of 7.8 and P/S ratio of 2.9. The dividend yield of Ensco International Inc. stocks is 0.3%. Ensco International Inc. had an annual average earning growth of 23.9% over the past 10 years. GuruFocus rated Ensco International Inc. the business predictability rank of 3.5-star.
Covidien PLC, formerly Covidien Ltd, is engaged in the development, manufacture and sale of healthcare products for use in clinical and home settings. Covidien Ltd. has a market cap of $20.88 billion; its shares were traded at around $41.75 with a P/E ratio of 13 and P/S ratio of 2. The dividend yield of Covidien Ltd. stocks is 1.7%.
Romick bought 150,000 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Aon Corporation is a holding company whose operating subsidiaries carry onbusiness in three distinct segments: insurance brokerage and other services; consulting; and insurance underwriting. Aon has a market cap of $10.35 billion; its shares were traded at around $38.78 with a P/E ratio of 12.1 and P/S ratio of 1.4. The dividend yield of Aon stocks is 1.5%. Aon had an annual average earning growth of 3.9% over the past 10 years.
Romick bought 576,300 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Vodafone AirTouch Plc is the world's largest international mobile communications firm. Vodafone Group Plc has a market cap of $100.78 billion; its shares were traded at around $19.16 with and P/S ratio of 1.6. The dividend yield of Vodafone Group Plc stocks is 6.6%.
Romick bought 1.38 million shares of this stock. Click here to access Romick’s complete holding history of this stock.
PETSMART, INC. is an operator of superstores specializing in pet food, supplies and services in the United States. Petsmart Inc. has a market cap of $3.76 billion; its shares were traded at around $31.18 with a P/E ratio of 18.4 and P/S ratio of 0.7. The dividend yield of Petsmart Inc. stocks is 1.3%. Petsmart Inc. had an annual average earning growth of 26.9% over the past 10 years. GuruFocus rated Petsmart Inc. the business predictability rank of 2.5-star.
Romick bought 130,000 shares of this stock. Click here to access Romick’s complete holding history of this stock.
Occidental Petroleum Corp. explores for, develops, produces and markets crude oil and natural gas and manufactures and markets a variety of basic chemicals. Occidental Petroleum Corp. has a market cap of $64.11 billion; its shares were traded at around $78.94 with a P/E ratio of 17.1 and P/S ratio of 4.2. The dividend yield of Occidental Petroleum Corp. stocks is 1.7%. Occidental Petroleum Corp. had an annual average earning growth of 13.6% over the past 10 years.
Romick bought this sock as a new position for the quarter.
In his recent Letter to Shareholders, Romick provided a detailed discussion on this stock:
We continue to learn more from our failures than from our successes. Our latest lesson stems from the disappointing outcome of our investment in ConocoPhillips (COP). We initially made this investment in 2006, not long after the company made its largest investment in Burlington Resources. The company argued at the time that Burlington gave it the scale and long-lived reserves platform necessary for growth. Disbelieving investors sold COP stock, causing it to trade at a discount to its peers. We overcame our initial skepticism and bought management’s pitch — hook, line, and sinker. Management at first exhibited a shareholder-friendly use of cash flow in the form of share repurchases, debt repayment and dividends. Then it turned into Mr. Hyde in a series of misguided capital commitments. Thankfully, the humane public markets allow for catch and release.
After COP underperformed its peer group both in operating metrics and stock performance, we sold the stock in the first quarter, incurring a 15% loss, and then redeployed that capital into Occidental Petroleum (OXY, Financial).
OXY is unusual in that it is the only large oil company that has actually met its stated reserve replacement targets. Although the Deutsche Bank charts below only compare OXY to three of its competitors, the picture is similar when compared to the other major integrated oil companies. We expect OXY to continue to meet its reserve replacement targets. Just as important, the company has
replaced its reserves and increased production at an enviable cost per boe (barrel of oil equivalent). OXY had been a moribund third tier oil company until President Stephen Chazen, a former head of Merrill Lynch investment banking, joined the company in 1994. Since then, he has developed and executed a long-term game plan that allowed OXY to join the majors without competing for the same assets.
OXY gained mineral rights by purchasing (not leasing) California land that most of the majors were either not drilling or were ready to sell. Conventional wisdom was that California’s best oil production days were behind
it. That may be, but OXY believed the complex geology in California meant that there were pockets of undiscovered, low-cost oil throughout the state. California is regularly subjected to massive tectonic shifts. As a result, gushers found 100 years ago at 3,000 feet can be found today in similar sedentary layers at 13,000 feet.
OXY patiently accumulated what is now 1.3 million acres of land in California. We want to emphasize “patiently” because they chose not to drill for many years. California law requires that they publish the results of the wells they drill no later than one year after the fact. By accumulating land but postponing the drilling, they were able to keep buying land with little competition. Drilling has since begun, and recent wells in the San Joaquin Basin point to 150 to 250 million barrels of reserves — the biggest on-shore oil discovery in at least 30 years. Better yet, those reserves have a relatively low extraction cost (
We believe such successes will be unusual as they exploit the remaining acreage — but not extraordinary. We also believe there will be other significant finds, and we do not believe OXY’s stock price reflects that potential. At the very least, OXY should continue to surpass its peers in low-cost reserve replacement, and retain the unique and enviable position of spending less each year to maintain production (maintenance capital spending) than the amount of depreciation, depletion, and amortization that it expenses. At best, the California “re-discoveries” add billions of barrels of oil to OXY’s reserve base, a value not reflected in the stock price today. Traditional EBITDA measures in a peer group comparison do a disservice to Oxy, since they don’t reflect the full option value of the company’s California properties as they earn very little money today.7
A combination of factors, including increased production from low-cost reserves, a possible higher multiple from investors, and oil prices that we believe are more likely to move higher than lower, should contribute to stock price performance in excess of the market, albeit with the cyclical risks attendant any oil company.
Conclusion
Despite his pessimistic view toward the stock market, Investment Guru Steven Romick has added position to several of his top holdings. He seems to like Oil & Gas company and a few of his top holdings operates in that sector.
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.
Also check out:
