FPA Crescent Fund commentary for the third quarter ended September 30, 2016.

H/T Dataroma

Dear Shareholders:

The FPA Crescent Fund (“the Fund”) returned 5.29% in the third quarter and 5.50% year to date. This compares to 3.85% and 7.84%, respectively, for the S&P 500 and 5.30% and 6.60%, respectively, for the MSCI ACWI index.

FPA Crescent Fund

[drizzle]The third quarter saw a rebound in the financial sector and an ongoing rally in high-yield bonds, both of which benefited Crescent given the Fund’s 23% exposure to financials and 6% exposure to high-yield/distressed debt. All of the winners fell into these two categories and added 1.87% to the Fund’s quarterly return. The losers detracted -0.60% and lacked any specific theme.1

FPA Crescent Fund

We write more substantial letters at midyear and year end as our long-term shareholders are aware. The world generally doesn’t change enough to justify taking pen to paper more frequently.

FPA Crescent Fund has outperformed its exposure in 2016 and remains conservatively postured with a net risk exposure of 64.5%. This is one of those times when we feel we’re better off just doing nothing instead of putting new investments in the Fund. The lack of any action within the portfolio at first glance belies our relentless research effort, however. We’re like ducks who gracefully glide across a pond but whose webbed feet are paddling furiously, unseen below the water’s surface. We continue to visit companies, meet with managements, consultants and anyone else who might educate us as to what makes a particular business and/or industry tick. In this period of higher prices, we take our completed work and put it on the shelf while patiently awaiting a day when prices offer more attractive opportunities to invest our capital.

Tom Petty will close this letter for us: “The waiting is the hardest part. Every day you see one more card. You take it on faith, you take it to the heart. The waiting is the hardest part.”2

Respectfully submitted,

Steven Romick

Portfolio Manager

October 9, 2016

See the full PDF below.

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