As an investor, you have a vast array of options at your disposal, allowing you to diversify and tailor your investment strategy according to your financial goals and market outlook. One compelling investment approach is exemplified by the FPA Crescent Fund (FPACX), a prominent mutual fund known for its flexible, “go-anywhere” investment strategy. With $10.4 billion in assets under management, FPA Crescent offers a dynamic investment strategy that has produced impressive returns across different time horizons.
Performance Overview
The FPA Crescent Fund has demonstrated solid performance in recent years. Over the past 12 months, it has achieved annualized returns of 14.35%. This robust performance is noteworthy considering the various market conditions it has navigated. Over a three-year period, the fund has delivered returns of 6.75%, and over five years, it has yielded 9.51%. Over a decade, its annualized return stands at 7.41%. These figures reflect the fund’s ability to perform well in different market environments, though it should be noted that it has outperformed the US Moderately Aggressive Target Allocation Index over three and five years but has lagged behind it for one and ten years.
Investment Philosophy and Strategy
The FPA Crescent Fund operates with a contrarian investment philosophy. This approach involves seeking out securities that are perceived to be trading below their intrinsic value. The fund’s investment universe is broad, encompassing large-cap stocks, small-cap stocks, international equities, and high-yield bonds. This flexibility allows the fund to adapt to market conditions and identify opportunities across various sectors and geographies.
A distinctive aspect of FPA Crescent’s strategy is its willingness to hold significant cash reserves. This cautious approach enables the fund to avoid investments that are deemed overvalued and to capitalize on favorable opportunities when they arise. By maintaining a flexible asset allocation, the fund aims to protect capital while seeking attractive returns.
Insights from Mark Landecker
Mark Landecker, a co-manager of the fund, provided valuable insights into the fund’s investment strategy during a recent Expert Interviews series. Landecker explained that the fund focuses on “winning by not losing,” a strategy that often involves holding cash during periods when the market is perceived as overpriced. This approach is grounded in the principle of absolute value, where investments are evaluated based on their intrinsic worth rather than relative performance.
Landecker emphasized that the fund’s flexibility allows it to adjust its holdings based on prevailing market conditions. For example, if large-cap stocks are perceived as expensive, the fund may shift its focus to small-cap stocks. Similarly, if both stocks and bonds are priced optimistically, the fund may choose to build up its cash reserves and wait for more attractive investment opportunities.
Current Investment Preferences
In the current market environment, FPA Crescent is focusing on several key areas:
- Consumer Products: The fund has recently increased its exposure to consumer-product stocks. These stocks, which were highly valued in the past due to low interest rates, have become more attractive as their prices have declined and interest rates have risen. The fund believes that current valuations offer potential for future gains.
- Mid-Cap Stocks: FPA Crescent is particularly interested in mid-cap stocks, which are companies with market capitalizations below $10 billion. These stocks are seen as undervalued compared to their larger counterparts and are expected to benefit from increased attention as the market focuses less on mega-cap stocks.
- International Markets: The fund sees opportunities in international markets where valuations are lower compared to U.S. companies. However, it maintains a cautious stance on investments in China, citing concerns over the country’s shift from a free-market economy to a more centrally-planned approach.
Notable Stock Picks
Landecker highlighted several stocks that are currently favored by the fund:
- Heineken (HKHHY): Heineken, a leading global beer company, is appreciated for its strong market position and broad geographic reach. The fund expects Heineken to continue growing at a modest rate due to its established brand and scaled operations.
- CarMax (KMX): CarMax, the largest independent used vehicle dealer in the U.S., is valued for its data-driven approach to pricing and strong brand reputation. Despite recent challenges in the used vehicle market, the fund believes that CarMax’s investments in customer experience will drive future growth.
- Vail Resorts (MTN): Vail Resorts, which operates a significant number of mountain resorts and ski areas, is considered valuable for its unique assets and market dominance. The fund anticipates that Vail will continue to benefit from its integrated Epic ski pass and its position in the market.
Conclusion
The FPA Crescent Fund’s go-anywhere strategy and contrarian approach offer a unique investment opportunity for those seeking a flexible and dynamic investment vehicle. By focusing on absolute value and maintaining the ability to adjust holdings based on market conditions, the fund aims to deliver attractive returns while mitigating risks. Investors interested in a versatile fund with a proven track record and a flexible investment strategy may find the FPA Crescent Fund a compelling option for their portfolios.