Steven Romick on the FPA Q2 Call.
The biggest impact in Q1, which is Covidien, declined so much in Q2 that it topped the losers chart. And as of today, Covidien has made back all of its losses in the second quarter, which mark to market only didn’t transact. And in the second quarter decline has made back as it approaches its all time high as we speak.
Microsoft led the charge in the second quarter and now seems to be pulling Covidien as its leading the early third quarter charge for poor performance. Again, this is really all just noise and nothing reflects that more than Omnicare that you see on this page, which at numerous periods of time of inter-quarter declines over the last few years, along the way to doubling from our cost.
The FPA Crescent allocations, when you look at risk asset exposure, has declined somewhat from the prior quarter. And we continue to maintain a very conservative posture in the fund. The stock price has continued to offer little in the way of margin of safety, and given the continued risk in the market, one shouldn’t be—I’m sorry—the continuing rise in the market, one shouldn’t be too surprised to see the fund’s exposure to risk assets to continue to decline. So it’s declined by a few percent since the first quarter.
The portfolio characteristics slide you have in front of you now, this reflects that things aren’t particularly cheap as the P/E can certainly reflect which is slightly higher than where it’s been over our 20 years. Price/Book is in line, Return on Equity is relatively in line. And we continue to see better value, at least relatively speaking, and we’re trying to think of ourselves as absolute, value investors. So I do recognize that I’m making a relative statement, that the larger companies are relatively more attractive and that is reflected in our higher market cap at $76 million.