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Fund Spy

What Makes FPA Crescent Tick?

A mix of conviction and caution has paid off for this 5-star fund.

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 FPA Crescent (FPACX) resides in the moderate-allocation category, but it's far more distinctive than its category name implies. FPA Crescent aims for equitylike returns, but it invests in companies of all sizes across the globe through stocks, traditional bonds, and convertibles. It will often hold a hefty stake in cash and sells stocks short as well--although the latter strategy is done in small increments and is used primarily to mute volatility. Steve Romick, who's managed the fund since its 1993 inception, is a highly selective stock-picker: That portion of the portfolio, which typically comprises more than 50% of assets, usually contains 20-40 long positions.

An Unconventional Value Strategy
Romick is a dyed-in-the-wool value investor, but he doesn't stick with a single set of metrics. He does tend to focus on cash flow, but he isn't wedded to either troubled, deeply cyclical companies or growth darlings trading at a modest discount. And unlike most value managers, in addition to looking at company fundamentals Romick also uses macroeconomic analysis to help limit risk in the portfolio. For example, in the mid-2000s, he examined the skyrocketing housing market, the spread of subprime debt, and the overuse of leverage and pricey valuations and then decided to avoid financial services firms. (The fund did sell short a few of those stocks, such as  Capital One Financial (COF) and  HSBC Holdings (HBC).) That decision paid off in the financial-crisis-fueled, October 2007-March 2009 bear market, when the fund lost a relatively modest 27.4%--12 percentage points less than its typical moderate-allocation peer and only half as much as the S&P 500 Index.

Greg Carlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.