Another tech holding, Broadcom, develops and markets digital and analog semiconductors. The company was acquired by Avago Technologies in 2015 and is headed by Hock Tan, a leading figure in China’s technology industry. Last year Broadcom added to its roster of holdings by acquiring California-based CA Technologies, a leading infrastructure technology firm. Landecker says the company trades at “an attractive multiple to free cash flow, and has an excellent operator at the helm.”

Insurer AIG is more reflective of the fund’s deep value roots. The stock first became part of the portfolio about a decade ago after the massive government bailout for the beleaguered insurer, and the FPA Crescent managers added to the position in 2018. While AIG continues to face a difficult environment for property and casualty insurers, an improved balance sheet and a change in management a couple of years ago have led to signs of a turnaround. A more obscure attraction is AIG’s substantial store of tax losses over the years, which it can use to offset taxes on future profits. “We think AIG, over time, can earn a 10% to 12% return on tangible equity,” Selmo says.

Long Haul Investing

With its diversified strategy covering several asset classes, FPA Crescent is more appropriate for investors who value limiting their losses rather than swinging for the fences looking for returns. That philosophy kicked in well in 2007 and 2008 when signs of trouble in the financial sector led Romick to steer clear of stocks in the financial sector and to short Lehman Brothers. “Over the two calendar years in 2008 and 2009, we were one of the few funds that actually made money,” he says proudly.

The fund’s goal is to generate equity-like returns over the long term, take less risk than the market and avoid permanent impairment of capital, and by those measures it has done an admirable job over the current market cycle. Between October 2007 and December 2018, the fund’s annualized return was 5.56%, while the S&P 500’s was 6.54%. Its maximum drawdown was about half that of the index during the period, and it was about one-third less volatile.

But the last few years have been challenging ones for the fund. As interest rates were scraping the bottom and the bull market continued, the fund’s large cash stake proved to be a drag on its returns. International stocks, an area where the fund is active, underperformed U.S. securities. And except for some brief periods, the yields on junk bonds—once one of Romick’s favored hunting grounds—weren’t that attractive.

Despite these headwinds, Romick points out that the fund’s long equity positions have outperformed the S&P 500 over the last decade. The fund also managed to avoid big land mines, such as beleaguered energy stocks. “Our returns are driven by what we own, and what we don’t own,” he says. “And if we don’t see opportunities we like, we are willing to stay on the sidelines.”

In a candid letter to shareholders, Romick summed up the fund’s strengths and weaknesses in a nutshell. “For more than a quarter century, the fund has leaned into weakness,” he observed. “That is a hallmark of our past success, and we expect it to be no different in the future. We have never been able to dial in timing, however. We habitually buy and sell early, which has led to fund performance untethered from the benchmarks.”

Red Flags For Corporate Bonds, Consumer Staples

Over the last few years, Romick and his team have been paring down what they see as the riskiest asset classes and stock market sectors. The fund has substantially reduced its presence in high-yield bonds and investment-grade corporate bonds, which Romick thinks could hold some unpleasant surprises for investors because of the worrisome levels of debt that governments and businesses now have on their books.