Recent discussions here brought up several reasons members decided to sell or hold FPACX. The large asset base of the MF and its big cash position seemed to push the sellers to their decision. I brought up the matter of Source Capital, the CEF now managed by Romick in concert with two members of the Crescent fund (the Contrarian Value team) and two FPA managers who run the FPA New Income Fund (FPNIX) according to a discipline known as AFI (Absolute Fixed Income). SOR after Romick, et al took over sold so much of the old manager's portfolio that a huge CG distribution was made in February. Now, my point: if an investor wants Romick without the huge asset base and the buckets of cash, SOR fits the bill. Right now, equity represents about 57% of assets, mostly US big caps, but some foreign as well. Cash and treasury notes make up about 11%, with the balance being managed by the AFI guys. AUM are now $337M. Romick's long-term record is exemplary, but the performance of the New Income Fund is really underwhelming. I don't know who has the final say on weighting of equity vs. fixed income. The CEF distributes about 4.5% (not guaranteed) and traded today at about a 5% discount. A long, Romicky discussion of SOR's statement of purpose can be found in the Annual Report (
http://www.sourcecapitalinc.com/literature). Not a whole lot new from Romick, but it's as good a statement of what a new fund is supposed to accomplish as I ever see these days.
Comments
From the Annual Report
Fund Asset Allocation
The CV (The Contrarian Value team led by Steve Romick), will decide how much of the Company will be
invested in equities and fixed income securities, having made
such asset allocation decisions for more than two decades. The
amount invested in equities will be relatively similar to the equity
exposure in the CV Strategy—a derivative of bottom-up equity
investment decisions. For example, in a sharp market decline,
the CV team may decide to take advantage of buying opportu-
nities that may drive a different asset allocation, one more ex-
posed to equities. The AFI team will have responsibility for
investing the balance in fixed income securities.
http://www.sourcecapitalinc.com/docs/default-document-library/2015-12_source-capital_annual.pdf?sfvrsn=4
I wonder if Mr Romick would ever use the leverage that C E F's can use if buying opportunities became extremely compelling ? Wow !
Also
As of 4/28/2016
Share
Price NAV Premium/Discount
$37.71 $39.70 -5.01%
Effective Leverage (USD): $0.000M
http://www.cefconnect.com/fund/SOR
From FPACX 1st Q Letter Dated April 27th
Investing
Our focus on delivering risk-adjusted returns causes us to follow our own path. This might be
uncomfortable at times but, as Seth Klarman wrote in a recent Baupost letter, "You don't become a value
investor for the group hugs."
We're not going to beat the market (nor meet our stated objective of
delivering market rates of return with less risk) by investing the same way the market does. For instance,
we won't ever have the same sector exposures as the market. Sometimes, we'll own a lot of financials -
like we do now - but sometimes we'll own none. The sum total of this means that our returns, when
compared to the market over short and intermediate periods, might differ wildly, possibly making us
appear unusually smart or stupid.
http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/fpa-crescent-q1-2016-commentary_final.pdf?sfvrsn=6
Has often been a fair amount of recency and short-termism in this forum.