At FPA Crescent, manager Steven Romick can invest almost anywhere in the world and in nearly any kind of asset. That includes the standard fare -- stocks, bonds and cash -- and some not-so-typical investments, including currencies and subprime home loans.
But the fund's unrestrained mandate doesn't mean Romick takes undue risks. He's a value investor who invests with a long view. "We seek the unloved, the out-of-favor or the misunderstood," he says. His contrarian strategy, plus Crescent's large exposure to assets other than stocks, means the fund will occasionally lag the broad stock market, especially when the market is roaring. Over the past year, for instance, Crescent trailed Standard & Poor's 500-stock index by 4.3 percentage points. (By contrast, it beat the average balanced fund by 2.1 points.) But over the long haul, Crescent has shone: Since its 1993 launch, it has earned 11.0 percent annualized, outpacing the S&P 500 by an average of 2.4 percentage points per year. And it has done so with 35 percent less volatility than the index.
Part of the problem, says Romick: "Nothing's really attractive, so we've been on the sidelines." He is not afraid to let cash build in the fund. At last report, about 32 percent of the fund's assets sat in cash and other short-term investments.
But Romick hasn't been completely idle. He added to some existing holdings (including medical-equipment maker Thermo Fisher Scientific) and trimmed others (Wal-Mart Stores). And he's finding attractive opportunities overseas, such as Norwegian food company Orkla. But, he says, the changes were "nothing substantial." Besides the cash hoard, Crescent recently had 62 percent of its assets in stocks, 2 percent in corporate bonds and 1 percent in mortgage bonds. The remaining 3 percent? That sat in stocks sold short (a bet on falling prices). Sometimes Romick will juxtapose a short sale with a business he likes. Take CVS, the drugstore chain. It's one of Crescent's best performers over the past year (up 29 percent). Romick liked CVS because of the firm's drug-benefits unit, Caremark. To hedge his bet, he sold short shares of Express Scripts, a Caremark rival.
Lately, Romick has shown an activist streak, taking on the board of directors at Occidental Petroleum. He objected to the board's plan to replace CEO Stephen Chazen. Under pressure from Romick and other Oxy shareholders, the board reversed course and agreed to let Chazen stay on until the end of 2014.
(Nellie S. Huang is a senior associate editor at Kiplinger's Personal Finance magazine. Send your questions and comments to email@example.com. And for more on this and similar money topics, visit http://www.Kiplinger.com.)Copyright © 2014, The Baltimore Sun