FPA Crescent’s Steve Romick found some value among large financials and high-yield bonds earlier this year, but a blend of low rates and high valuations gives him pause today.
Romick: We actually were able to participate because certain sectors were more attractive. But let’s start with a point at the end of last year, in 2015, on a trailing basis P/E, price/book, and price/sales of the market were at levels not seen since the peaks of ’07 as well as the peak in 2000. And nevertheless, in February, there were a number of different securities and asset classes that were trading down, not the least of which were financials, lenders in specific, and so we were able to increase our exposure to that sector and so we were buyers, wholesale, of a number of different names in our portfolio and added a couple of other names in our portfolio as well into the depth of that weakness.
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Culloton: So, you added to large banks like Citigroup, Bank of America, American Express, not a bank but a lender.
Romick: But a lender, yes.
Culloton: So, these are companies that perhaps due to the memory of the financial crisis which lingers and maybe some of the increased regulation people are very afraid of. What got you comfortable enough to invest or add to these positions?
Full transcript at Morningstar