Steven Romick loves his freedom—and so do his investors. Romick has described his $3.5 billion fund, FPA Crescent (FPACX), as "a free-range chicken." The fund can buy stocks or bet against them, stay in the U.S. or go abroad, purchase high-quality debt or junk, or even load up on cash. The flexibility has paid off. The fund's return for the past decade is an annualized 11 percent, better than 99 percent of its rivals, according to Morningstar (MORN).
Romick, 47, is both cautious and opportunistic. His first priority is to limit losses: "If you buy an asset and feel comfortable with it even if the worst thing happens, then you are in a good position." He will dive into areas that seem undervalued. In an April 2009 shareholder letter, he said: "We bide our time and wait for slow fat pitches in our strike zone."
The goal is to share in most, if not all, of the market's gains in good times, and use the fund's flexibility to move into different assets, or even go short, in down times. Since its start, FPA Crescent has captured 80 percent of the gains of the Standard & Poor's 500-stock index in months when it rose and suffered 55 percent of the losses when it fell, Romick says. Over that period, the fund was a third less volatile than the index.
Romick's contrarian streak was on display in the crash of 2000-2002. He avoided tech stocks and held a lot of cash. The fund rose 46 percent during that period, while the S&P 500 lost 38 percent, data compiled by Bloomberg show. In the next big meltdown, in 2008, he limited losses by having almost half the fund in cash. It lost 21 percent during the S&P 500's 37 percent decline.
These days, Romick, who expects the economy to "muddle along," likes energy stocks and large global companies. As of June 30, two top-10 holdings were Los Angeles-based Occidental Petroleum and London-based Ensco. Shares of Ensco, a contract driller and a big holding since 2001, are up about 68 percent since the end of that year.
Larger companies are better values than small caps, Romick says, and better able to tap into faster-growing foreign markets. Wal-Mart Stores (WMT), which gets about a quarter of its revenue abroad, was the fund's fifth-largest holding as of June 30. Cash, meanwhile, was 32.1 percent of assets. Big cash stakes can cushion losses; they can also be risky. "If markets move and you are sitting in cash, you can easily get left behind," says Ronald A. Sugameli, whose Wellesley (Mass.)-based New Century Alternative Strategies Portfolio has money in FPA.
Romick's style won't appeal to people who want fund managers to follow a strategy that fits neatly with their overall asset mix. His advice for them: "Give the money to someone else. I'm not the investor for everyone, and I am not trying to be."
The Bottom Line: Romick's FPA Crescent mutual fund has used a flexible approach to outperform its peers, with less volatility than the market.