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FPA CRESCENT FUND (buy? sell? hold?)

edited February 2013 in Fund Discussions
im concerned that the fund (fpacx) is suffering from asset bloat. (over 10 billion) the manager can no longer buy small or mid cap stocks, where he excelled. the fund keeps 30% in cash. the managment fee has not dropped with the bigger aum. i would appreciate all opinions. i have owned this fund since 2004. morningstar has lowered it to a 3 star fund for the last 3 years.


  • Art
    edited February 2013
    Pay no mind to M* and their ratings. There are good funds with 3* ratings such as Delafield(defix) and Aston/Fairpoint Mid Cap(chttx). Just my opinion.

    As far as FPACX goes I just added to it. If you have lost confidence in it then maybe it is time to part ways. But I would ask what part this fund plays in your portfolio and what would you replace it with? What has changed that makes you question your original purchase?

    FPACX- 1 YEAR performance is 10.3%. I will take that for a balance fund.

  • edited February 2013
    Reply to @Art: Art please Edit your post and remove the gazillion blank lines that you added before posting and save it again.
  • Reply to @Investor: i don't see those blank lines. looks fine to me.
  • If you've become disenchanted with the fund and have something better to swap it with, you probably should. Actually, if you are strong on M* ratings, I see they gave it 4 stars and a gold rating.

    That said, this is one of my core funds. Some times it seems like it lags, but when I measure it against the benchmark I like to use, TRRAX, a balanced 60:40 retirement fund, it has done quite well. Better returns overall, but I really like it because of it's downside protection. Your argument on bloat is not a new thing. It has had a large asset base for years now.

    Good luck on your decision.
  • Reply to @MikeM: It must have been edited either by Art or a moderator. Thanks to whoever did that.
  • edited February 2013
    In fact, it is a 5-star fund now. If you dig a bit deeper and go to Ratings, you find that it has 3 stars for the 3 year performance, but 5 stars for 5, 10 years and 5 stars overall. And it has M* Gold rating.

    Interestingly, its 3 year pre-tax return is 9.75%, and 8.77% after tax. Looks good to me, especially considering its safety (34.6% in cash). I must admit that I did not invest in it yet, but I am very tempted. I am trying to decide whether to start investing in FPACX, or to add to MFLDX (Bronze rating in M*), which has a much shorter history, but is much more tax efficient.
  • Here is a link to Crescent's Annual Report.Mr Romick states his case for a continued high cash position and his current strategy.He continues to believe the current economic situation will not end well.Their is even a slight hint of closing the fund. FPACX continues to be a core holding of mine.I did sell some to buy into MFLDX within the past eighteen months and am glad I did before MFLDX went corporate with their share classes.These two funds plus BRUFX form my core Roth holdings four years into retirement.For younger readers I strongly advise setting up a retirement account through FPACX's shareholder services.$100.00 down,$100.00 a month and no sleepless nights! I just did that in a non-retirement account with SEEDX in the past month, same shareholder services,$100.00 down and $50.00 twice a month.Two younger managers with good creds from Acorn and Harris Associates .
  • BWG
    edited February 2013
    Two things that I find troubling about what is an otherwise excellent fund (FPACX):
    1) The failure to close the fund and the substantial increase in AUM without a corresponding significant drop in E.R.
    2) Romick talking up his use of alternate assets like farmland when, in fact, the farmland investment is less than 1% of the portfolio -- IMHO, not enough to move the needle.


    p.s. TSP_Transfer ..thanks for mentioning SEEDX. Maybe worth David taking a look at in the monthly commentary.
  • edited February 2013
    The user and all related content has been deleted.
  • edited February 2013
    M* Star Rating is mathematically objective as it is purely based on past performance. However, it provides little clue for the future.

    So, due to conservative nature of this particular fund, it moves to 5 stars after market crashes and lose stars when markets are rallying. This sort of fund is low beta fund and if downside protection is important for you, hold on to it. If markets keeps rallying it might lag further.

    Consider that over long term, markets have gone up 2/3's of the time. So, being overly conservative at younger ages might also be a risk to your portfolio.
  • Reply to @BWG: On the list for April or May, depending on how April's focus feature - an extended focus on CEFs - plays out. I'm working on a piece about Oakmark alumni, which certainly covers Mr. Jackson.

    As ever,

  • Reply to @David_Snowball: Wonderful! Thank you so much for your efforts!!
  • Hi ducrow. I've been at this for almost 30 years now. One thing I have learned is to not make any buy/sell decisions based on a fund's M* rating. Keep in mind that M* must force every fund into a category they have created. More than occasionally, it simply does not work. For example, FPACX is in a category M* calls "moderate allocation" that typically has a mix of stocks, bonds, and cash (typically more stocks than bonds). Unfortunately, this kind of thinking creates some very strange bedfellows. FPACX is compared and rated along with VWELX, RPBAX, PRWCX, DODBX, and OAKBX, just to name a few. These funds are not even remotely similar. They all have different mandates. FPACX is the only one that gives its management the ability to go anywhere and employ almost any allocation. Obviously a fund like PRWCX that has had a low cash allocation will perform differently than one like FPACX that often has 25-30% in cash. Manager Steve Romick has often been a contrarian in terms of the fund's management. While FPACX might lag in bull markets (like the one we have been in for the last 2-3 years), it has excelled during market selloffs. It has captured 96% of the upside gains in the market, while netting only 83% on the downside. This is considerably less volatility than PRWCX, VWELX, DODBX, and other funds that are in the same M*-created category. Other risk measures show similar results for FPACX, including Alpha, Beta, STD. Hope this helps. My advice is to stick with Steve Romick.
  • edited February 2013
    Reply to @BobC: All good points. Since you mention DODBX, PRWCX, & OAKBX (all of which I have long owned), I'll note that while often categorized together, the three differ greatly. The first is much more aggressive, rising more in good markets but falling faster in bad. The other two are much more conservative and their returns often track closely - but still behave much differently, probably owing to different hedging strategies. Geez - How hard can it be to read the full prospectus and a few recent reports from management? Valuable insights into fees, holdings, and strategies. Much better than going by M*. Having said that, if M* rated a fund 3-star or less, I'd take a much harder look than otherwise - but wouldn't dismiss it out of hand.
  • edited February 2013
    Reply to @BWG: Er, what? There's Farmland in FPA Crescent? Hmmm I had no idea. Not that I'd buy it for that (there's SCPZF, AGRO and LAND, as well as a few others for farms), but just interesting.
  • edited February 2013
    Steve Romick's fund has earned it's place as one of largest fund holdings.

    Also, morningstar calls FPACX some sort of supporting player? I've used it as one of my "core" funds for years
  • edited February 2013
    Reply to @hank: M* agrees with you, Hank. Here's the punchline from the glossary entry "Morningstar Rating for Funds":

    "Ratings are objective, based entirely on a mathematical evaluation of past performance. They're a useful tool for identifying funds worthy of further research, but shouldn't be considered buy or sell signals." (emphasis added)

    And they make reading the reports, prospectus, SAI, etc. easy ... as you rightfully say people should read ... since they're all on the "Filings" pages for each fund they cover.
  • Fund's Annual report is available now on their web site. You can read his commentary on porftolio, economy, fund size, etc.
  • I love the comment from M* that their star ratings should "not be considered buy or sell signals". It's funny, if only because of the way fund companies use the same star ratings, and M* knows this. Does anyone really think M* doesn't look at their created star ratings, analyst ratings, self-made style boxes, and their fund categories as darned good marketing tools for M*? I do not disagree with AndyJ or anyone else, but we all know M* chuckles all the way to the bank when they say these things.
  • edited February 2013
    Reply to @BobC: Hi Bob, just to be clear, I've got just as many barbs for M* as the next guy; they don't exactly treat their retail customers like they give a whit (the constant complaints on the discussion board about web site functionality and bad data are evidence of that).

    But they're at least clear about the star/return:risk ratings, if not totally upfront (access to the glossary is camouflaged in a tiny link at the bottom of each M* page). Anybody who's serious about DD on their investments should know they need to find out what the ratings actually mean, instead of thinking they know all about them without a little effort toward understanding what they represent.

    I think you're right on about "chuckling all the way to the bank." I also think there's a case to be made that they show favoritism in the medal ratings toward frequent advertisers.

    Best, AJ
  • edited February 2013
    Reply to @AndyJ: I think funds that advertise M* ratings should also be required to prominently display the M* disclaimer (noted by Andy) nearby. (Ahh ... there's probably a link back to M* somewhere nearby.) In fact, the whole practice seems questionable. We know the funds' own portrayal may be a bit "rosy." Why embellish that description further using an outfit such as M* - whose methodology is clearly suspect? Agree with BobC about the mutually beneficial relationship. To put it more bluntly: "I'll pat your back. You pat mine."

    (Might benefit investors more if they only listed those funds which earned 1 + 2 stars, along with a brief explanation of what went wrong:-)
  • edited February 2013
    Hi, guys.

    I also mention this in my March commentary, but since this thread is what led to my questions, I thought I'd share it here first. I talked with the folks at FPA yesterday, a bit about Source Capital (their CEF, which I'll highlight in our April issue, whose special focus with be on CEFs), a bit about updating FPIVX (which I'll do in May, when one story will focus on Oakmark alumni) and a bit of the talk focused on your concerns about Crescent's size. Some of the FPA folks read the monthly commentary and some scan the board, so they were familiar with this thread.

    They wanted to make two points. One: you were exactly right to notice that one paragraph in the Annual Report. It was, they report, written with exceeding care and intention. They believe that it warrants re-reading, perhaps several times. For those who have not read the passage in question:
    Opportunity: When thinking about closing, we also think about the investing environment —both the current opportunity set and our expectations for future opportunities. Currently, we find limited prospects. However, we believe the future opportunity set will be substantial. As we have oft discussed, we are managing capital in the face of Central Bankers’ “grand experiment” that we do not believe will end well, fomenting volatility and creating opportunity. We continue to maintain a more defensive posture until the fallout. Though underperformance might be the price we pay in the interim should the market continue to rise, we believe in focusing on the preservation of capital before considering the return on it. The imbalances that we see, coupled with the current positioning of our Fund, give us confidence that over the long term, we will be able to invest our increased asset base in compelling absolute value opportunities.

    Fund flows: We are sensitive to the negative impact that substantial asset flows (in or out) can have on the management and performance of a portfolio. At present, asset flows are not material relative to the size of the Fund, so we believe that the portfolio is not harmed. However, while members of the Investment Committee will continue to be available to existing clients, we have restricted discussions with new relationships so that our attention can be on investment management rather than asset gathering.
    What might be the soundbites in that paragraph? "We think about future opportunities. They will be substantial. For now we'll focus on the preservation of capital. Soon enough, there will be billions of dollars' worth of compelling absolute value opportunities." In the interim, they know that they're both growing and underperforming. They've cut off talk with potential new clients to limit the first and are talking with the rest of us so that we understand the second.

    Point two: they've closed Crescent before. They'll do it again if they don't anticipate the opportunity to find good uses for new cash.

    Thought you'd like to know,

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