At the end of 2013, Wall Street expected the company to make more than $8.00 per share for the same twelve-month period. Wasiolek believes that this network advantage is strengthened by Sabre's continued expansion into IT solution markets, a business that constitutes 30% of the company's 2016 revenue. We also respect individual opinionsthey represent the unvarnished thinking of our people and exacting analysis of our research processes. The Fund may also invest in debt securities rated below investment grade ("high yield bonds" or "junk bonds"). The second new investment is John Deere, the leading seller of agricultural equipment in North America. At less than 14x our estimate of normalized EPS and with over a 3% dividend yield, we believe the current valuation is attractive for this good collection of businesses. A surprise addition to both of our top-10 lists of high-conviction and new-money purchases is self-storage REIT giant Public Storage. This quarter saw a fair number of interesting and arguably lesser-known stocks on both of our top-10 high-conviction and top-10 new-money purchase lists trading at discounts to our analysts fair value estimates. Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Develop and improve features of our offerings. The Fund's cash and cash equivalent exposure at 12/31/2019 was 36.3%. In fact, overall activity for our top managers reached their lowest level of the past six consecutive quarters. Also of note on our list of top 10 high-conviction purchases is wide-moat conglomerate GE. To pursue the Fund's investment objective, the Fund's portfolio managers ("portfolio managers") invest in both equity and debt securities of companies. PDF FPA Crescent Fund If QE returns. Public Storage has significant exposure to fast-growing and supply-constrained markets like Los Angeles, San Francisco and Seattle. Celgene has been benefiting from recent approvals for new indications of its flagship product Revlimid, while the 2010 acquisition of Abraxis Biosciences has provided diversification away from immunomodulatory drugs. Due to elevated valuations in many of the equities we own and a lack of distress or adequate yields in the credit markets, the FPA Crescent Fund ("the Fund") began 2020 with a net equity exposure of ~57%, Given better risk/rewards in many securities, we have recently increased it by ~1000 bps to ~67%, We have removed some market hedges, selectively added to existing names and purchased new companies with strong balance sheets, The S&P 500 is now back at December 2018 levels1, Unless one wants to make a call on energy prices, travel or financials, we do not think there is much at "throw away prices" - yet, We have yet to materially increase the Fund's credit exposure o High-yield ex-energy is not cheap yet, The Fund does not have meaningful exposure to travel- or energy-related stocks (as of year-end or recently), We do not believe any of the Fund's long equity holdings have balance sheet issues, We believe the Fund still has ample liquidity to take advantage of potential future opportunities2, The bottom 10% of companies in the S&P 500 have declined more than 54% year-to-date - the Fund does not own any of these companies, Due to elevated valuations in many of the equities we own and a lack of distress or adequate yields in the credit markets, we began 2020 with a net risk exposure of just 63.7%, This was nearly 10 percentage points less risk exposure than the end of 2018 and one of our lowest exposures in recent years, The S&P 500 was at a Shiller P/E (10-year cyclically adjusted) of ~31x as of the end of February, higher than the 27x level at the previous market peak in October 2007, The S&P 500 is now at a ~23x Shiller P/E, as of March 16, 2020, The S&P would need to drop another ~10% (~2150 on S&P 500) to get to a 20x Shiller P/E, Recall the market was at a 13x Shiller P/E in March 2009, The market has dropped ~30% but is still ~1.5% higher than the December 2018 lows3, The Bloomberg Barclays US High-Yield ex-Energy index has a yield-to-worst of just 8.01%, Exhibit B: US High Yield ex Energy (YTW) vs 10-Year US Treasury Yield5, Exhibit C: US Corporate BBB-Baa vs 10-Year US Treasury Yield6, We have increased the Fund's net equity exposure since the end of 2019, We believe part of the portfolio is priced at attractive risk/rewards but part is still priced at just good risk/rewards, By no means do we think prices are at crisis or "you have to do well" in a worst-case scenario level for high-quality businesses, This is why we have increased exposure, but have not become more fully invested, While we hope to become fully invested, we see enough downside to continue wait for what we believe to be great prices, When we think great prices arrive, we will ring the bell, Exhibit D: FPA Crescent Fund Preliminary Equity Exposure7. The portfolio managers also search for companies that offer earnings growth, opportunity for price/earnings multiple expansion and the best combination of such quality criteria as strong market share, good management, high barriers to entry and high return on capital. Gear advertisements and other marketing efforts towards your interests. Until it replaces the security, the Fund repays the person that lent it the security for any interest or dividends that may have accrued during the period of the loan. We think of high-conviction purchases as instances when managers have made meaningful additions to their portfolios, as defined by the size of the purchase in relation to the size of the portfolio. The Prospectus details the Fund's objective and policies, sales charges, and other . Wed like to share more about how we work and what drives our day-to-day business. Wed like to share more about how we work and what drives our day-to-day business. The following year we think it will be in the low $6s. Disclosure: As of the publication of this article, Joshua Aguilar has a position in Berkshire Hathaway, while Eric Compton has no ownership interests in any of the securities mentioned above. She notes that the company just disposed of another $8.5 billion in Healthcare sector lending to narrow-moat rated, As for the other names on the two lists, wide-moat rated Intel and no-moat Dollar General stood out in that they were both high-conviction new-money purchases for at least one of the managers that was buying the stocks during the most recent period. He also believes that industry growth in the generics space will slow as drug launch opportunities decline and nimble low-cost entrants continually emerge. While Mylan intends to overcome generic industry concerns by growing its specialty pharma and complex generic operations, which generally face limited competition and higher margins thanks to greater manufacturing and regulatory hurdles, Waterhouse remains skeptical of Mylan's success in some of these complex products. Click the link in the email we sent to to verify your email address and activate your job alert. The Fund's portfolio managers believe that this combination of securities broadens the universe of opportunities for the Fund, offers additional diversification and helps to lower volatility. He would like to see a decent margin of safety for investors before he would consider recommending the name. Source: Bloomberg, as of March 16, 2020. Communicate directly with company management, suppliers, and customers. Ultimate Stock-Picker, Public Storage is the countrys largest owner of self-storage facilities. The portfolio holdings as of the most recent quarter-end may be obtained at www.fpa.com. Learn how it impacts everything we do, Xcel Energy: Minnesota Regulators Surprise Investors With Disappointing Rate Decision, Franklin Resources: Distribution Deal With Great-West Could Be More Valuable to Franklin Than Putnam, Dominion Energy: Stock Remains Value Trap With Few Near-Term Catalysts, Capri: Faces Near-Term Challenges but Continues to Develop Its Three Brands. Through this service, Morningstar may have a business relationship with fund companies discussed in this report. PDF FPA Crescent Fund The FPA Crescent Fund ("the Fund") returned 0.32% in the second quarter and declined -0.66% in the first half (1H) of 2018. The markets did, however, bounce back in July, rising 2.10% despite ongoing concerns about the Chinese economy and the prospect of rising interest rates in the near term (with the Federal Reserve signaling an increase in rates as early as September), as investors seemingly put the Greek debt crisis behind them. The FPA Crescent Fund -Institutional Class ("Fund" or "FPACX") total expense ratio as of its most recent prospectus is 1.17%, and net expense ratio is 1.14% (both including dividend and interest expense on short sales). She thinks that the company's massive installed base of industrial equipment remains the physical representation of a wide economic moat with formidable barriers to entry. PDF FPA Crescent Fund ETFs and funds that prioritize investments based on environmental, social and governance responsibility. <> The dividend prospects of three large-cap companies. Includes detailed analysis of FPA Crescent Fund's positions in LUK, TCEHY, NAPRF, NPSNY. Current P/Es, though higher than the recent past, are only slightly higher than their mid-teens long-term average. While these commentaries must be taken with a grain of salt given active management's pecuniary interest and their interest in their own survival, we do agree that the current stock-picking environment has become more difficult. The portfolio managers select debt securities by using an approach that is similar to the approach they use to select equity securities and by trying to forecast current interest rate trends. A debt security is an interest-bearing security that companies or governments use to borrow money from investors. FPACX - Performance - FPA Crescent | Morningstar Maintaining independence and editorial freedom is essential to our mission of empowering investor success. The portfolio managers believe that these opportunities often arise when companies are out-of-favor or undiscovered by most of Wall Street. Read our editorial policy to learn more about our process. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters. PCP is providing more components on key new airplanes, which should allow the company to outgrow its end markets. While he acknowledges that the firm's specialty drug segment, composed primarily of EpiPen, has grown above his expectations, he thinks that the emergence of competing epinephrine products should continue to pressure the segment's growth and profitability. by purchasing it at the market price at or before the time of replacement. Market Fair Value Based on Morningstar's Fair Value Estimates for Individual Stocks. Ultimate Stock-Picker. Only one wide-moat giant, Top 10 High-Conviction Purchases Made by Our Ultimate Stock-Pickers, Unlike last quarter, there was a fairly high amount of crossover between our two top 10 lists this quarter, including wide-moat GE, Union Pacific, and Analog Devices, narrow-moat Discover and, Top 10 New-Money Purchases Made by Our Ultimate Stock-Pickers. During the company's most recent earnings call, CEO Heather Bresch downplayed scientific issues as a barrier to launch for the pair of generic drugs, instead suggesting that delayed launches resulted from the U.S. Food and Drug Administration reorganizing and changing its priorities. All of this occurred without a genuine correction in the markets, a sign that investors are less than enthusiastic about the longevity of what has so far been a six-year-plus bull market. FPA Crescent Fund Commentary: First Quarter Preliminary Update These products and services are usually sold through license agreements or subscriptions. Provide specific products and services to you, such as portfolio management or data aggregation. What links all of these holdings is an outstanding culture anchored by a formalized system of continuous improvement called Danaher Business System (DBS). And the stock is today in the mid-$30s. These rent increases in supply-constrained markets, Schwer adds, should continue to drive growth for the firm in the next several years. While not as dire as the corrections we saw during May-August 2011 (when the markets dropped close to 20%) and April-June 2010 (when the markets fell more than 15%), it was a reminder that the markets can go down for a short period of time and still continue to march upward. The Shiller P/E ratio is calculated by dividing the current price of the S&P 500 by ten-year average earnings and adjusting for inflation. The Fund then replaces the security it borrowed. 1 0 obj So, when you think about Mylans earnings, and heres how I think about it, the companys earning something in the high $4s this year, of which a dollar will be EpiPen. We also respect individual opinionsthey represent the unvarnished thinking of our people and exacting analysis of our research processes. Hugues Capet, roi des Francs (c.940 - 996) - Genealogy - Geni.com FPA Crescent Fund Performance for U.S. stocks was far less robust during the second quarter of 2015, as concerns about the Greek debt crisis and slowing growth in China increased volatility in both the credit and equity markets, with the S&P 500 TR index increasing just 0.28% during the period (having declined 1.94% in June). Please disable your ad-blocker and refresh. Sabre specifically operates two distinct businesses in the structurally attractive travel market. The FPA Crescent Fund's objectives, policies, guidelines and restrictions are, in all material respects, Health Care was a slightly bigger focus during the second quarter, generating three of the top 10 high-conviction purchases--CVS Health, Zoetis, and. We also recognize that the decision to purchase any of the securities highlighted in this article could have been made as early as the start of April, with the prices paid by our managers being much different from todays trading levels. This site is protected by reCAPTCHA and the Google The stock currently trades at a 23% discount to our analyst's fair value estimate. These products and services are usually sold through license agreements or subscriptions. That said, corrections tend to follow no clear pattern and are generally unpredictable. Noverini remains positive about GEs outlook, particularly as the firm has accelerated its efforts to sell the majority of GE Capital, only keeping the specialty finance businesses that directly support its wide-moat industrial businesses. Portfolio holdings of Steven Romick - FPA Crescent Fund. How we use your information depends on the product and service that you use and your relationship with us. He specifically highlights his concern with Mylan's foray into biosimilars and generic insulins, and he thinks the company trails some of its peers in these efforts. We are pleased to have the opportunity to add shares of what we consider a best-in-class company at a price that implies it is only average. The maker of the epinephrine auto-injector EpiPen was under the medias microscope just under a year ago for controversially raising the price of the lifesaving drug over the decade. Travel technology companies have recently taken a hit in the stock market, and Morningstar analyst Dan Wasiolek currently sees long-term opportunities in a couple of names in the space. It is especially important right now, with the S&P 500 trading at/near record highs and the market as a whole looking modestly overvalued, with Morningstar's stock coverage universe trading just above our analysts' estimates of fair value at the end of last week. That trend of outflows continued during July, with investors pulling more than $20 billion out of actively managed U.S. equity funds, their worst monthly showing since July 2011. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive. It should also be noted that Morningstar's Institutional Equity Research Service offers research and analyst access to institutional asset managers. <>/Metadata 4776 0 R/ViewerPreferences 4777 0 R>> This site is protected by reCAPTCHA and the Google PDF FPA XXX Fund Even so, six of the top 10 high-conviction purchases--, Top 10 New-Money Purchases made by Our Ultimate Stock-Pickers, Health Care was a slightly bigger focus during the second quarter, generating three of the top 10 high-conviction purchases--CVS Health, Zoetis, and. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments. I think stocks compare quite favorably to those options. The portfolio managers attempt to determine a company's absolute value using fundamental security analysis, which they believe generally provides them with a thorough view of a company's financial and business characteristics. The Morningstar Ultimate Stock-Pickers Team, Transparency is our policy. Next year its supposed to earn something in the mid $5s. Turning to our list of new-money purchases, the only firm we have left to highlight is narrow-moat Sabre. Selling a security short is when the Fund sells a security it does not own. Model portfolio targeting 7-9% dividend yield. Even so, several of our top managers moderated their previously bearish views, commenting more on what they saw as a fully but fairly valued market. Despite reaching an all-time high midway through the second quarter of 2015, the U.S. equity markets (as represented by the S&P 500 TR index) have risen less than 3% since the start of the year. This site is protected by reCAPTCHA and the Google So, the earnings that were looking at in 2018 in the low $6s, we think only about 25 cents of that comes from EpiPen. PDF First Quarter 2015 Commentary - vabg.fpa.com How we use your information depends on the product and service that you use and your relationship with us. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. The stock currently trades at a discount of 17% to our analyst's fair value estimate. <>/F 4/A<>>> Investors should exercise an abundance of caution with Mylan, however, and may require a greater margin of safety before initiating a position. A redemption fee of 2.00% will be imposed on redemptions of shares within 90 days. With Danaher's shares currently trading at 125% of our fair value estimate, it is difficult to see a valuation rationale for buying the stock. While English said little about the position in his quarterly commentary to fund shareholders, the move seems to line up with his more defensive stance in the face of tepid domestic economic growth. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data. In terms of size, Ile-de-France contains about 23.7% of the surface of France, but it is where 88.6% of the French population lives. Sign in to create your job alert for Finance jobs in Paris, le-de-France, France. It has now been more than three years since we have had a genuine price correction of at least 10% in the markets. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. . FPA Crescent Fund Q1 2022 Commentary | Seeking Alpha In an updated statement, Oakmark expressed confidence in Flannery's leadership, and continues to believe that GE is well-positioned for substantial earnings and free cash flow growth. . Like BBH, Wasiolek believes that the IT solutions business also provides the overall firm with a secondary switching cost advantage, as contract lengths are five to 10 years. Romick went on to emphasize the constant possibility of surprise in markets to bring home the importance of investing with a margin of safety: Cycles, as true in investing as in life, have been with us since the beginning of time. If you have an ad-blocker enabled you may be blocked from proceeding. Additionally, unlike bonds, stocks give some protection against inflation. Reproduction of such information in any form is prohibited. That said, she also notes that Celgene has other opportunities for growth outside of its blockbuster drug Revlimid, including numerous other oncology treatments, as well as the expansion of its drug platform to treat other diseases, such as psoriatic arthritis with Otezla, which could drive another $3 billion in annual sales for the firm. We already knew that Danaher was a new-money purchase made with conviction by the managers of Parnassus Core Equity Investor (PRBLX), but saw little discussion of the purchase, which was made after the March quarter had closed. FPA Crescent was the only Ultimate Stock-Picker to not only purchase the name during the period, but also to hold the name as of this writing. In cross-checking the most current valuation work and opinions of Morningstars own cadre of stock analysts against the actions (or inactions) of some of the best equity managers in the business, we hope to uncover a few good ideas each quarter that investors can dig a bit deeper into to see if they warrant an investment. Monthly payments from quarterly dividends . endobj In addition, Wasiolek also sees efficient scale as a third moat source benefiting the firm's core distribution business. We came close last year, when the markets declined about 7% between September and October, but they rallied to close out the year up 11.4% (and up 13.7% on a total return basis). Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Adj. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. This article first appeared on GuruFocus. Read our editorial policy to learn more about our process. This transaction should be completed by the end of 2016. It also pays to remember that when looking at this buying activity, the decision to purchase the securities we are highlighting could have been made as early as the start of April, with the prices paid by our top managers different from today's trading levels. FPA Crescent Fund Second Quarter 2018 Commentary. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. February and March reversed the historic trend, declining -6.08% causing the S&P 500 to end the quarter down -0.76%.