Steven Romick, Portfolio Manager of the FPA Crescent Fund, is scheduled as one of the presenters for the 6th Annual Value Investing Congress West that will take place on May 3 & 4 in Pasadena, California. Romick is well-known to pay attention to macroeconomic issues from a risk management perspective, while still staying true to a value investing discipline. An example of this appeared in his July 2008 interview with Value Investor Insight when he was asked “How do your more macro views, which have been quite negative, impact your stock-by-stock assessments?” Romick’s response:
In our calculations we’re making judgments on normalized operating profit, which is where our macro views may come in. A lot of very smart people own American Express, for example, but it hasn’t gotten cheap enough for us because we’ve felt that higher than expected charge-offs would cause them to earn at less than normal rates for another couple of years. It’s a great company and we can imagine owning it again someday, but the risk/reward over our time horizon hasn’t yet worked.
And one of his current macro concerns appears to be inflation. When asked in the Graham and Doddsville Newsletter last Fall about the “substantive liquidity response” from the U.S. government, Romick answered:
The government is doing its best to destroy the value of the US dollar. We have made efforts to de-dollarize our portfolio, taking advantage of other parts of the world that have better growth opportunities than the US with more exposure to currencies other than our own. We are seeking those companies that are more protected should inflation be more than expected in the future. Now, we are not calling for hyperinflation, but we will not tell you that it cannot come – that is something we view as a real possibility. We are looking for companies where we feel the pricing power would offset the potential rise in input costs. That leads us to a whole universe of companies, while keeping us away from others.
In response to these concerns, the FPA Crescent Fund has invested heavily into energy and high-quality companies. Its top 10 holdings at the end of 2010 were: Ensco, Aon, Covidien, Occidental Petroleum, CVS, Wal-Mart Stores, CIT Group Bonds, Stanwich Mortgage Loan Trust, Omnicare, and Microsoft.
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