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I don't like it when management loosens the reins on changes in investment objectives. Management at Crescent has decided to give itself carte blanche.
Actually I thought FPACX mandate was pretty flexible to begin with. In a "new normal", this is the last fund I want to put shackles on. They are giving themselves another reason to not make excuses for underperformance. I have absolutely no issues.
From: "FPA Crescent Fund (FPACX) seeks to provide a total return consistent with reasonable investment risk, through a combination of income and capital appreciation. "
To: "FPA Crescent Fund (FPACX) seeks to generate equity-like returns over the long-term, take less risk than the market and avoid permanent impairment of capital."
No change in strategy. T. Rowe Price just make a comparable tweak on three or four funds. David
David- Not a complete quote. Reading on, the managers may now change the investment objective without shareholder consent. When a fund gives itself carte blanche, I become concerned, that is all. FPA has operated with its present objective for years. Why the subtle but important change? I consider this an early heads up. Regards, Mark
Reply to @MarkM: There are a lot many companies who have disclaimer about being able to change the fund's objective without further notice. I get it, that companies like FPA have a higher standard to meet given people's expectation at large
I continue to be unworried until I hear they purchased moon rock.
You are creating an issue that doesn't exist. FPACX has always had a flexible mandate and has used it responsibly ---- and investors in FPACX understand this and invest in FPACX for precisely that reason. As long as the fund managers remain unchanged I am not at all concerned.
Thanks to all who addressed my point of whether changing a fund's objectives should be accomplished with shareholder approval or not. I have placed my and my family's money with FPA in one vehicle or another of theirs for over fifteen years. I intend to raise the change with them directly next opportunity I get.
He probably want the option to go to all cash if need be. When interest rates rise, Fed tapering stops etc the convulsions in the stock/bond market will be something to behold.
Reply to @David_Snowball: I see the omission of "total return" and "income" and insertion of "equity-like". This might reflect his growing reliance on equities versus bonds. This would be similar to comments some time ago of McGregor on his own fund OAKBX, saying that bonds hold it down, and OAKGX is better. If this is a correct guess, I would say yes, I trust the manager to pick up the best asset class under the rapidly changing circumstances. And yes, I agree with MikeM2, that it allows him to go all cash instead of "a combination of income and capital appreciation".
Sorry that my earlier reply came across as rushed and dismissive. Let me try again.
There are two issues. First, the actual change in the fund's objective. I'll check in with Ryan @ F P A about it. Such changes have been fairly common. (I read virtually every prospectus change filed with the SEC in Form 497s and I'd guess I see 4-6 such changes each month.) In general when I've spoken with fund companies about it, they're had the same explanation: "the old objective described the way we talked 10 (or 20 or 40) years ago. Over time, we've adopted a different vocabulary, one that we use both inside the firm and in our external communication. This change just makes formal and explicit a state has existed, but perhaps has been informal and implicit, for quite some while." So the move from "a total return" to "equity-like returns" makes explicit the goal Mr. Romick has been pursuing. But, as I said, I'll ask.
Second, the move from the objective being fundamental (hence requiring shareholder approval) to non-fundamental (requiring merely advance shareholder notification). Again, that's fairly common but I wouldn't hazard a guess about frequency. When I've spoken with fund companies about it, they typically position it as an effort to reduce shareholder costs. Calling a shareholder meeting takes weeks (typically six) and costs thousands (more if the firm retains folks to call shareholders individually to solicit their votes). The shift allows the board of directors to make changes and announce them far enough in advance that shareholders can go elsewhere if they're no longer comfortable. As you think about it, that's the same option you get when they choose to change managers.
Might the changed procedures represent a scam or some sort of imperial overreach by the fund's board? Maybe. There are always a few funds that abruptly change direction without shareholder approval (some silly water fund became a diversified small growth fund, or vice versa, a few years back and a loser that I'll grumble about in September), though that's mostly a desperate last resort by the captain of a sinking ship. I suspect that the realpolitik argument would be this: "at least 50.1% of shareholders will approve whatever we ask them to approve, witness the fact that they're about to authorize us to change objectives without their approval. This just streamlines those inevitable moves."
Do I get a warm-and-fuzzy from such arguments? No, not really. Do I think they're observationally correct? Yeah, pretty much.
What implications might this hold for FPACX and its shareholders? F P A is, and has for decades been, manic about its investment approach. They're absolute value investors and investment team members learn from the first day on board that "it's the best of a bad lot" won't cut it as an investment justification there. Romick's equity exposure has, over the past five years, ranged between 36-58%. Cash has occupied near half of the portfolio at times. I'm doubtful that anything in the first half of this change alters Mr. Romick's freedom of operation or signals any fundamental change in his perspectives. I'm doubtful that anything in the second half of the change signals a fiduciary lapse on F P A's part or a change in their perspective on their shareholders.
I could be wrong. And with a lot of advisors, I'd be more prone to suspect that I'm wrong. But F P A, like Tweedy Browne, Dodge & Cox, Artisan and a handful of others, is so insistently principled that I would doubt my doubts.
I did hear back from the folks at F P A. Their explanation pretty much affirmed my guess. They write, "We needed to align all of our materials and compliance insisted that if we kept using the phrase 'the fund seeks to generate equity-like returns over the long-term, take less risk than the market and avoid permanent impairment of capital' we needed to update the prospectus investment objective accordingly. That was the only motive behind the change." They also affirmed my guess that the other change, allowing the board to change the objective without a shareholder vote, was a matter of trying to hold down administrative costs.
Comments
To: "FPA Crescent Fund (FPACX) seeks to generate equity-like returns over the long-term, take less risk than the market and avoid permanent impairment of capital."
No change in strategy. T. Rowe Price just make a comparable tweak on three or four funds. David
Not a complete quote. Reading on, the managers may now change the investment objective without shareholder consent.
When a fund gives itself carte blanche, I become concerned, that is all. FPA has operated with its present objective for years. Why the subtle but important change? I consider this an early heads up.
Regards,
Mark
I continue to be unworried until I hear they purchased moon rock.
You are creating an issue that doesn't exist. FPACX has always had a flexible mandate and has used it responsibly ---- and investors in FPACX understand this and invest in FPACX for precisely that reason. As long as the fund managers remain unchanged I am not at all concerned.
Steve Romick, the self-described 'free-range chicken' investor, has rarely seen FPA Crescent fit within the constraints of its Morningstar style box:
From a release a few years ago:
"...free range" because it doesn't like to be put in a cage (limiting where it can invest), and is "chicken" because it doesn't like to lose money.
Thanks to all who addressed my point of whether changing a fund's objectives should be accomplished with shareholder approval or not. I have placed my and my family's money with FPA in one vehicle or another of theirs for over fifteen years. I intend to raise the change with them directly next opportunity I get.
Sorry that my earlier reply came across as rushed and dismissive. Let me try again.
There are two issues. First, the actual change in the fund's objective. I'll check in with Ryan @ F P A about it. Such changes have been fairly common. (I read virtually every prospectus change filed with the SEC in Form 497s and I'd guess I see 4-6 such changes each month.) In general when I've spoken with fund companies about it, they're had the same explanation: "the old objective described the way we talked 10 (or 20 or 40) years ago. Over time, we've adopted a different vocabulary, one that we use both inside the firm and in our external communication. This change just makes formal and explicit a state has existed, but perhaps has been informal and implicit, for quite some while." So the move from "a total return" to "equity-like returns" makes explicit the goal Mr. Romick has been pursuing. But, as I said, I'll ask.
Second, the move from the objective being fundamental (hence requiring shareholder approval) to non-fundamental (requiring merely advance shareholder notification). Again, that's fairly common but I wouldn't hazard a guess about frequency. When I've spoken with fund companies about it, they typically position it as an effort to reduce shareholder costs. Calling a shareholder meeting takes weeks (typically six) and costs thousands (more if the firm retains folks to call shareholders individually to solicit their votes). The shift allows the board of directors to make changes and announce them far enough in advance that shareholders can go elsewhere if they're no longer comfortable. As you think about it, that's the same option you get when they choose to change managers.
Might the changed procedures represent a scam or some sort of imperial overreach by the fund's board? Maybe. There are always a few funds that abruptly change direction without shareholder approval (some silly water fund became a diversified small growth fund, or vice versa, a few years back and a loser that I'll grumble about in September), though that's mostly a desperate last resort by the captain of a sinking ship. I suspect that the realpolitik argument would be this: "at least 50.1% of shareholders will approve whatever we ask them to approve, witness the fact that they're about to authorize us to change objectives without their approval. This just streamlines those inevitable moves."
Do I get a warm-and-fuzzy from such arguments? No, not really. Do I think they're observationally correct? Yeah, pretty much.
What implications might this hold for FPACX and its shareholders? F P A is, and has for decades been, manic about its investment approach. They're absolute value investors and investment team members learn from the first day on board that "it's the best of a bad lot" won't cut it as an investment justification there. Romick's equity exposure has, over the past five years, ranged between 36-58%. Cash has occupied near half of the portfolio at times. I'm doubtful that anything in the first half of this change alters Mr. Romick's freedom of operation or signals any fundamental change in his perspectives. I'm doubtful that anything in the second half of the change signals a fiduciary lapse on F P A's part or a change in their perspective on their shareholders.
I could be wrong. And with a lot of advisors, I'd be more prone to suspect that I'm wrong. But F P A, like Tweedy Browne, Dodge & Cox, Artisan and a handful of others, is so insistently principled that I would doubt my doubts.
For what it's worth,
David
I did hear back from the folks at F P A. Their explanation pretty much affirmed my guess. They write, "We needed to align all of our materials and compliance insisted that if we kept using the phrase 'the fund seeks to generate equity-like returns over the long-term, take less risk than the market and avoid permanent impairment of capital' we needed to update the prospectus investment objective accordingly. That was the only motive behind the change." They also affirmed my guess that the other change, allowing the board to change the objective without a shareholder vote, was a matter of trying to hold down administrative costs.
For what it's worth,
David