FPA Crescent Fund, run by Steven Romick, invested over $150 million in Russian oil and gas companies such as Gazprom OAO (MCX:GAZP) (OTCMKTS:OGZPY), LUKoil (OAO) (LON:LKOH) (OTCMKTS:LUKOY) and Rosneft’ NK OAO (MCX:ROSN) (OTCMKTS:RNFTF) during the second quarter of 2014 according to filings.

Steven Romick
Steven Romick

Steven Romick: Russian companies figure in new fund buys in Q2

In an earlier interview published in ValueWalk, Steven Romick spelt out his investment rationale.

“I mean, Russia’s interesting, because it’s obviously quite combustible over there right now, and it’s unusual because people are running in fear,” he said.

Speaking of the giant Russian energy majors he said they were of strategic importance to the state because energy counts for 25% of Russian GDP.  “It’s 50% in Russia of their annual revenues, and representing its strategic importance to the state and how important it is to their neighbors, it counts for 60% of their exports.  So we understand that there’s risk there. However, these companies are trading at very large discounts to other companies of their ilk.”

Steven Romick also drew confidence from the very large investments being made by insiders in these companies. The three companies account for 1.55% of the fund portfolio as at the end of the second quarter.

EM also makes an entry into the portfolio

There are interesting new investments in Hong Kong-based conglomerates Jardine Strategic Holdings Limited (LON:JDS) (OTCMKTS:JDSHF) and Jardine Matheson Holdings Limited (SGX:J36) (OTCMKTS:JMHLY), described as Chinese versions of Buffett’s Berkshire Hathaway, and having a finger in a host of different business pies.  Steven Romick invested nearly $173 million in the two companies, or just over 1% of the portfolio.

Genting Malaysia Bhd (KLSE:GENM) (OTCMKTS:GMALY), a Malaysian company involved in the leisure and hospitality business covering theme parks, gaming, hotels, seaside resorts, casinos  and entertainment, also received additional investment. The company is 0.9% of the portfolio.

New and additional exposure to the ‘born-again’ UK economy

Aerospace equipment maker Meggitt plc (LON:MGGT) (OTCMKTS:MEGGF) was a Buy during Q2 and now makes up 1.85% of the fund holdings. In an earlier Valuewalk interview Steven Romick said airline traffic would increase over the next 10-20 years and this would be a big plus for Meggit which is dominant in the wheel and space business. This is a company which generates a lot of FCF, has historically made good acquisitions with some of this capital and enjoys generous margins on its products.

Steven Romick increased his investment in Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD) by nearly 26% during the quarter, and the telecom operator has a weightage of nearly 1% in the fund as at Q2 end.

Steven Romick: Dump the C-I-Ts!

Steven Romick rued in his first quarter newsletter to shareholders that losing investments had cost the fund 0.41% in return.

“Not much can be gleaned from this other than maybe we shouldn’t have invested in companies that begin with the letters c-i-t,” he quipped. It turns out he was as good as his word.

During the second quarter the fund sold off or reduced holdings in seven stocks. Five of these stocks had names that began with C, I or T.

Covidien plc (NYSE:COV), CIT Group Inc. (NYSE:CIT), Interpublic Group of Companies Inc (NYSE:IPG), CareFusion Corporation (NYSE:CFN) were reduced and Tesco Corporation (NASDAQ:TESO) (LON:TSCO) was axed completely.

Another retailer to be jettisoned was Wal-Mart Stores, Inc. (NYSE:WMT).

Top 10 holdings and sector distribution

The value of the fund as at the end of the second quarter was $9.79 billion.

The fund’s top ten holdings as a percentage of portfolio were:

Microsoft Corporation (NASDAQ:MSFT)                 6.38%

Oracle Corporation (NYSE:ORCL)                          5.90%

Aon Plc (NYSE:AON)                                             5.52%

CVS Caremark Corporation (NYSE:CVS)                5.24%

Covidien plc (NYSE:COV)                                      4.20%

The sector exposure of the fund is shown in the chart below:

Steven Romick Sectors