Dear Shareholder:
Performance Overview
The FPA Crescent Fund – Institutional Class (“Fund” or “Crescent”) gained 5.93% in Q1 2024 and 20.46% in the trailing twelve months.1 The Fund captured 88.1% of the MSCI ACWI's return in the trailing twelve months, outperforming its 71.3% average net risk exposure.2
Performance versus Illustrative Indices3
| Q1 2024 | Trailing 12-month | ||
| FPA Crescent | 5.93% | 20.46% | |
| FPA Crescent – Long Equity | 8.74% | 29.85% | |
| MSCI ACWI | 8.20% | 23.22% | |
| S&P 500 | 10.56% | 29.88% | |
| 60% MSCI ACWI / 40% Bloomberg US Agg | 4.56% | 14.27% | |
| 60% S&P 500 / 40% Bloomberg US Agg | 5.94% | 17.97% |
Portfolio Discussion
Crescent's net risk exposure did not significantly change year-over-year and currently stands at 70.4%; however, that's not to say there hasn't been activity during that time. During the quarter, we exited two equity positions in their entirety – AIG (AIG, Financial) and Heidelberg Materials (XTER:HEI, Financial).
Crescent's top five performers contributed 8.26% to its return in the previous twelve months, while its bottom five detracted 0.99%.
Trailing Twelve-Month Contributors and Detractors as of March 31, 20244
| Contributors | Perf. | Avg. % | Detractors | Perf. | Avg. % |
| Cont. | of Port. | Cont. | of Port. | ||
| Meta Platforms | 2.55% | 2.8% | JDE Peet's | -0.32% | 1.2% |
| Alphabet | 2.12% | 5.1% | Charter Communications | -0.29% | 1.5% |
| Holcim | 1.33% | 3.2% | Nexon | -0.17% | 0.4% |
| Broadcom | 1.18% | 1.4% | Herbalife (multiple securities) | -0.12% | 0.3% |
| Amazon.com | 1.09% | 1.7% | Groupe Bruxelles Lambert | -0.10% | 1.3% |
| 9.08% | 14.2% | -0.99% | 4.7% |
We have discussed most of the contributors in the trailing twelve months. However, we have not recently discussed the following investments meaningful to the Fund's trailing twelve-month return.5
JDE Peet's (XAMS:JEDP) is the second largest coffee business in the world. Jacobs Douwe Egberts (JDE) combined with Peet's to explore IPO opportunities and ultimately went public in 2020. The company is currently navigating several issues, including the effects of the war on its Russian business, the lingering impact of the pandemic that curtailed out-of-home demand, and having to fight massive inflation in coffee prices. While management has not navigated these challenges as well as we hoped, the controlling shareholder sees it similarly and has ousted the former CEO. 6 While its turnaround remains a work in progress, its stock does appear inexpensive on both a relative and absolute basis at just 12.5x 2024's estimated earnings.
You can find the Fund's other positions addressed previously in our archived commentaries.
Closing
The stock market offers less opportunity today than it did at year-end 2022. The price/earnings ratios of the MSCI ACWI and S&P 500 are more than three and four points higher, respectively, than before 2023's market rally. We have taken advantage of the rising tide and reduced or sold some of the Fund's more expensive and lower-quality positions. We have also made a number of new investments that we will likely discuss in future commentaries, which we believe are both less expensive and of higher quality. We believe the portfolio's higher quality assets will serve us well as we move forward.
Respectfully submitted,
FPA Crescent Portfolio Managers
April 25, 2024
- Effective September 4, 2020, the previous single class of shares of the Fund was renamed the Institutional Class shares. Unless otherwise noted, all data herein is representative of the Institutional Share Class.
- Risk assets are any assets that are not risk free and generally refers to any financial security or instrument, such as equities, commodities, high-yield bonds, and other financial products that are likely to fluctuate in price. Risk exposure refers to the Fund's exposure to risk assets as a percent of total assets. The Fund's net risk exposure as of March 31, 2023 was 71.3%, and March 31, 2024 was 70.4%.
- Comparison to the indices is for illustrative purposes only. The Fund does not include outperformance of any index or benchmark in its investment objectives. An investor cannot invest directly in an index. The long equity segment of the Fund is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. Long equity holdings only includes equity securities excluding paired trades, short-sales, and preferred securities. The long equity performance information shown herein is for illustrative purposes only and may not reflect the impact of material economic or market factors. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Long equity performance does not represent the return an investor in the Fund can or should expect to receive. Fund shareholders may only invest or redeem their shares at net asset value. Past performance is no guarantee, nor is it indicative, of future results.
- Reflects the top five contributors and detractors to the Fund's performance based on contribution to return for the trailing twelve months (“TTM”). Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. Percent of portfolio reflects the average position size over the period. The information provided does not reflect all positions purchased, sold or recommended by FPA during the quarter. A copy of the methodology used and a list of every holding's contribution to the overall Fund's performance during the TTM is available by contacting FPA Client Service at [email protected]. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities listed.
- The company data and statistics referenced in this section are sourced from company press releases and financial disclosures unless otherwise noted.
- Source: Financial Times March 8, 2024: JDE Peet's replaces CEO and chair with ex-M&S boss Luc Vandevelde
This Commentary is for informational and discussion purposes only and does not constitute, and should not be construed as, an offer or solicitation for the purchase or sale with respect to any securities, products or services discussed, and neither does it provide investment advice. Any such offer or solicitation shall only be made pursuant to the Fund's Prospectus, which supersedes the information contained herein in its entirety. This presentation does not constitute an investment management agreement or offering circular.
Any views expressed herein and any forward-looking statements are as of the date of the publication. are those of the portfolio management team and are subject to change without notice. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments. This information and data have been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data.
Portfolio composition will change due to ongoing management of the Fund. References to individual securities or sectors are for informational purposes only and should not be construed as recommendations by the Fund, the portfolio managers, the Adviser, or the distributor. It should not be assumed that future investments will be profitable or will equal the performance of the security or sector examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at fpa.com.
