Welcome, Fools, to part 26 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.
Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?
|
FPA Capital (FPPTX) |
|
|---|---|
|
Expense ratio |
0.83% |
|
Fund size |
$2.17 billion in assets |
|
1-year return |
(3.64%) |
|
5-year return |
16.85% |
|
10-year return |
12.69% |
Top 5 holdings
|
Company |
% of Assets |
|---|---|
|
Avnet |
4.97% |
|
Ensco International |
4.80% |
|
Michaels Stores |
4.54% |
|
Patterson-UTI Energy |
3.94% |
|
Big Lots |
3.78% |
Meet Bob Rodriguez
The fightin' team at FPA Capital is led by Bob Rodriguez, who was recently named one of Morningstar's 10 best mutual fund managers. That can't be too surprising. Rodriguez runs First Pacific Advisors, the Capital Fund, and the bond-oriented FPA New Income fund (FPNIX); the latter two funds have both easily bested their benchmarks.
But managing FPA Capital has truly earned Rodriguez his reputation. Over the past 15 years, Morningstar reports, his small-value style has returned more than 17% annually. And he's achieved that record without taking undue risks. For example, while hundreds of others were placing big bets on high-flying dot-coms, Rodriguez kept a big pile of cash in the fund and waited for bargains.
That's still his style. In an August interview with Kiplinger's, Rodriguez said that his screening criteria, which generally includes a P/E of 15 or less and a price-to-book ratio of 2 or less, was identifying few new opportunities. Accordingly, FPA Capital's top sector as of Sept. 30 was U.S. government bonds, which accounted for 24% of the portfolio. Talk about guts.
How he invests
Of course, it takes more than courage to produce superlative results; preparation is also key. In that sense, Rodriguez, who is based in Los Angeles, comes off a little like Pete Carroll, the head football coach for the University of Southern California, which also happens to be his undergrad and graduate alma mater.
Consider FPA's investment in craft seller Michaels. Rodriguez told Kiplinger's that he and his managers visited stores, interviewed customers, analyzed distribution centers, and interviewed the firm's new CEO before buying shares. That extraordinary due diligence resulted in a 16-bagger for FPA Capital shareholders as of August. Today, the firm is being bought out for $44 a share, adding still more gains for Rodriguez's clients. Eat that, Wall Street.
How did he know Michaels would be a winner? At the time, Michaels traded cheaply on a price-to-earnings basis, and its clean balance sheet left plenty of working capital with which management could effect a turnaround. Recent FPA purchases that could be cut from a similar mold include homebuilder Champion Enterprises
Is this fund for you?
Can Rodriguez deliver like Peter Lynch? He hasn't thus far; Lynch produced 29% average annual returns over 13 years. But Rodriguez deserves deep respect for avoiding the Wall Street hamster wheel and putting money only into his best ideas. That's a Lynchian principle that few have employed better than Rodriguez.
What's more, his concentrated value-driven approach mirrors that of many other investing greats, including Marty Whitman and Chuck Akre. That speaks well for future returns. But neither you nor I will have a chance to get in on the gains; FPA Capital has been closed since 2004.
Don't let that discourage you, though. Value never goes out of style, and there are plenty of excellent choices still available. One large-cap fund, which joined the Motley Fool Champion Funds portfolio in the July 2004 issue, has busted the index by more than 14% and is still going strong. (It's also one of several winners for advisor Shannon Zimmerman; click here to get 30 days of free access to the entire portfolio.)
That's this week's profile. See you back here next week, fund nation. Good night.
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Fool contributor Tim Beyers, ranked 1,236 out of 13,971 in Motley Fool CAPS , is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the stocks or funds mentioned in this article at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. The Motley Fool's disclosure policy is always championship caliber.
