Russ Kinnel: Hi, this is Russ Kinnel with Morningstar. I'm joined today by the co-managers of FPA Perennial and FPA Paramount, Greg Herr and Eric Ende.
Thanks for joining us.
Eric Ende: Thank you. We are happy to be here.
Greg Herr: Thanks Russ.
Kinnel: Paramount and Perennial are funds that have long been pretty similar, but it sounds like you've charted a path where they're going to slowly diverge as Paramount starts to dial up a little greater foreign exposure. Do you want to walk us through what's going on?
Ende: Well, we've decided that this is perhaps something we should have decided 10 or 15 years ago, that being a fund with a global focus is very much in the interest of the shareholders and gives them further opportunities to own more companies, different companies. It gives them an opportunity to hedge the U.S. dollar. This has many advantages.
At the same time, we have many shareholders who probably want to continue to own a domestic-oriented fund, and the Perennial Fund will be domestically oriented and the Paramount Fund will very global.
Kinnel: So, it sounds like you're targeting a very gradual transition over a period of years, depending on, obviously, what the market gives you, what happens to get cheap and what happens to get expensive over that time.
Ende: Right. That's a fair statement. We want to do it right and we're not going to be in a hurry.
Kinnel: Greg, I wonder if you can tell us a little bit about what's been capturing all the headlines obviously is Europe and the crisis there. But, clearly, you're a bottom-up investor. How does something like Europe affect your portfolio?
Herr: So, what we've been seeing from the political situation in Europe has made many of the companies that we've researched fundamentally much more attractive values than they were six months ago.
And so the idea for us is to do the homework on the businesses ahead of time, and then, if we get an opportunity like this to take advantage of it and start buying positions in very high-quality companies. So, in general, we're not making decisions in the portfolio on a macro basis. So, it's very much company-by-company on a bottom-up basis. And if we get the opportunity from something like this, we try to take advantage of it one company at a time.
Kinnel: Can you provide an example of one of the names you mentioned that looks like it's gotten attractive enough for you to buy?
Herr: Sure. So, a French diagnostics company called bioMerieux is something that we recently started to purchase, and it historically had traded at fairly premium multiples, because it has attractive characteristics, very recurring revenue stream. They have diagnostic instruments placed around the world, and then, the company has the reagents that they sell to the labs that perform the experiments using those machines.
As a result, it's a very profitable business, returns on capital are quite high, and historically the market paid a premium for that. Based on the recent issues that we've seen in Europe, suddenly it became much more attractively valued, and we were able to establish an initial position in the company.
Kinnel: You typically don't go out and buy a big position right away. What's your approach there?
Ende: We like to gradualistic. We don't want to have to decide to buy a 3% or 4% position all right now. We feel a lot more comfortable doing it in pieces over time, and getting more of a, for example, getting an average down impact from that kind of trading.
Kinnel: So, the names at the top of your portfolio are typically ones that have been with you for a long time. Can you tell us a little bit about O'Reilly Automotive, which is one of your top holdings?
Ende: Sure. O'Reilly is in the auto parts business. It sells to both professional mechanics, which is called the jobber business, and sells to the do-it-yourselfers, people, obviously, who repair their own cars. We've owned it since, a little bit before 2000, 1998, I think.
It's become a larger and larger position because the company has performed so well, both in difficult economic environments and in favorable environments. We've known the management for years and years and years. They are focused very much on the business. They are very honest, straightforward, and technically very strong managers. We're delighted to own it.
Kinnel: Well, thanks so much for joining us.
Herr: Thank you, Russ.
Ende: Thank you. We feel delighted to be here.
Kinnel: I am Russ Kinnel.