The top five holdings in this fund are Oracle Corp (ORCL, 3.70% of assets); Tencent Holdings Ltd (TCTZF, 3.53%); United Technologies Corp (UTX, 3.22%); American International Group Inc (AIG, 3.19%); and Citigroup Inc (C, 2.98%).
FPA Crescent (FPACX)
From The Chartist Mutual Fund/ETF Letter
A subscriber recently asked me, “If you had to pick one fund for immediate purchase that is in the Balanced Portfolio, which would it be?” Our choice is FPA Crescent (FPACX), which has been in the Balanced Portfolio since its inception on July 11, 2002. It has proven to be a standout performer by posting strong returns and only average risk levels.
But before we delve into the specific characteristics of the fund, first some background on the Balanced Portfolio and our methodology for picking the funds. In our July 3, 2002 issue when we introduced the portfolio we wrote: “Simply, our goal is to build a diversified portfolio that will weather the ups and downs of the market. It’s for investors who think protection of capital is more important than growth of capital.” We concluded by stating: “Over the long run we would expect the Chartist Balanced Portfolio to slightly underperform to S&P 500, but with significantly less risk.”
The first step in our fund selection process is to scan our database for the absolute best performing funds in their class. To do this we calculated the performance during both bear and bull market cycles. This is the return side of the equation.
The next step was to calculate risk in a meaningful way. To do this we used the Ulcer Performance Index. As the name implies, it measures the amount of risk an investor can stomach. It ignores upside volatility, but penalizes downside action. The calculation combines the depth of the drawdown as well as the time it takes to recover to its original level. If the decline is relatively deep but quick, then the suffering is manageable. If the decline is deep, but also prolonged, then the pain is intolerable. A low ulcer reading hopefully leads to “peace of mind and sleepful nights.”
The final step in the process was to calculate the annualized return of the fund then subtract the annualized return of money market fund rates. This is the excess return the fund earned compared to a risk-free investment. The next criterion was how much risk exposure there was to achieve that gain. We then divided the excess return by the Ulcer Index to compute its risk-adjusted return.
FPA Crescent was one of the funds that met all the criteria in our initial screening. Back then the fund had $284 million in assets. Manager Steve Romick had been at the helm since its inception in 1993. Now the fund has $17.4 billion in assets. Romick is still in charge, but has two co- managers and six analysts helping steer the portfolio. The fund currently has an allocation of approximately 55% stocks, 26% bonds, 15% cash and 4% short stocks.
It would be very difficult to find another fund that has delivered such consistent returns
over a similar period of time. One of the main concerns going forward is can Romick and his crew continue to deliver the results given the current asset size? We have not seen any evidence that the fund has lost its edge to its increased size.
Dan Sullivan, The Chartist Mutual Fund/ETF Letter, www.thechartist.com, 900-942-4278, April 13, 2017