Jason Stipp: I'm Jason Stipp from Morningstar. We're here today at FPA Funds talking to Steve Romick. He's the manager of the five-star FPA Crescent Fund. This is a fund that looks across asset classes, looks across market caps for opportunity. Thanks for joining me, Steve.
Steven Romick: Sure.
Stipp: First question for you. Your cash stake in the high 20%s today. I'm wondering how that compares to your cash stake historically. Then as a follow on, what that says about the opportunity set that you're seeing in the market today.
Romick: We've always run with a fair amount of cash. Cash is really a by-product of our investment process. If we don't see something that we like, money ends up not being invested in stocks or bonds, or some other asset class ends up being invested in stocks. Looking back over the last 17 years, it actually has averaged mid-20s, so it's a little bit above average, but not dramatically so. I think the bigger question is really how is the rest of the portfolio made up?
We actually have less equity exposure than we have had in the past, currently because we put a lot of money into distressed debt, high-yield bonds, a year ago. That opportunity has come and gone. Those positions are more in unwind mode at a point in time when stocks still are not at full strength in our portfolio.
Stipp: So then, would you say that you were in more of a defensive mode at this time? Do you still see some opportunities out there? If so, where do you see them?
Romick: The opportunities really are more... Let's just break into different parts, different buckets. The high-yield bucket there's no opportunity. High yield is low yield today. If you look at our portfolio a year ago, March '09, the yield on our portfolio was 22.8%. The yield today, at the end of March, was 7.8%.
Stipp: So a lot of that opportunity is obviously kind of...
Romick: It's kind of "Whoosh!" It's gone. It's not there for us anymore. Looking on the stock side, for us, with a little bit like a dull knife in a market that is an unending, seemingly, a list of upticks coming our way. It's our tape of upticks. It's something that, for us, with the markets up 75-80% from a low, we're not as interested. It's just harder for us to find ideas that are real great opportunities, terrific risk-rewards.
That's doesn't mean the market can't go higher. It doesn't mean there aren't certain aspects of the market that are cheaper than others. But overall, it's harder for people who are deep value investors to put capital to work.