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FPA Nabs Ex-Oakmark Vets to Launch Foreign Fund

Fairholme halves its Regions stake and more.

Morningstar Fund Analysts, 10/13/2011

For the first time in more than 25 years, iconoclastic asset manager FPA has filed to launch a new fund. FPA's ability to carve its own path has led to superior returns for some of its funds, so it wouldn't be surprising if the new fund, FPA International Value, has a distinctive profile.

FPA nabbed two former Oakmark analysts--Pierre Py and Eric Bokota--to run the new strategy. While this is the duo's first time managing an open-end mutual fund, it's expected that they will be given the same amount of freedom to run their portfolio as other FPA managers. Founder Bob Rodriguez and other FPA principals, like Steve Romick, manager of FPA Crescent FPACX, have patiently shaped the hiring process at FPA, taking their time to find the right fit for each strategy when needed. Given FPA's contrarian investment approach, the firm manager's tend to be distinctive investors.

For example, Rodriguez, who manages FPA Capital FPPTX boldly veered from his peers, raising his cash position and short-term-bond position to near 40% of assets during the 2008 credit crisis and placing greater than 50% of his equity stake in energy. While these moves can lead to erratic short-term returns, the 10-year performance through Oct. 11, 2011 is at the top of its category.

Although the new managers tapped for FPA Intentional Value are unproven, other analysts like them who have worked for David Herro on Oakmark International OAKIX have proved to be highly successful managers, just not at Oakmark. In fact, David Samra and Dan O'Keefe were another pair that worked together under Herro before leaving to start Artisan International Value ARTKX in 2002. That's been a top-performing foreign large-blend fund ever since.

Py and Bokota's having worked together using Herro's deep-value philosophy could help with the transition given FPA's own deep-value approach. However, any manager risk is compounded by an initial expense ratio of 1.98%, which is much higher than Oakmark International's 1.08%. That doesn't leave a lot of room for the pair to make mistakes.

The new fund, which FPA hopes to launch later this year, highlights the firm's greater international focus. FPA Crescent's overseas exposure is up to nearly 17% as of September 2011, and FPA Paramount FPRAX recently adopted a global mandate. Py will be a comanager of FPA Paramount, and both he and Bokota will provide international research for the fund.

Berkowitz Sells Off a Portion of Regions Financial
Fairholme's FAIRX Bruce Berkowitz has halved the fund's stake in Regions Financial RF, according to an SEC filing by the bank-holding company this week. It could be that the sales were made to meet redemptions in the fund, which has suffered billions in outflows in 2011.

The fund has seen $4.7 billion in net outflow through September, and the fund's cash position has dwindled amid redemptions, declining to 4.4% as of May 31 (the most recent disclosure of the fund's holdings) from 25% in February this year. The fund's total assets are down 50% from a year ago amid the fund's poor performance. Berkowitz has made eye-popping bets on some of the most bedeviled and controversial financial stocks in 2011, bringing Fairholme's stake in the sector to roughly 75% as of May 31. Steep declines in Bank of America BAC and Citigroup C have driven a year-to-date decline of 27% in the fund, putting it in the 99th percentile of the large-value category.

Regions said in its filing that Berkowitz sold about half of the fund's investment, bringing the market size of the position to 56.5 million shares, or just under 5% of the bank's shares outstanding as of the end of the third quarter. The Regions stake was 5.25% of the portfolio as of May 31.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.
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