The FPA Capital Fund (MUTF:FPPTX) and the FPA Crecent Fund (MUTF:FPACX) New Income Fund was managed by Robert Rodriguez from its inception in 1984 to 2007. Rodriguez has been hailed as a stock market prophet for predicting the last two market crashes. The $1.2 billion funds are now managed by investment officers, Dennis Bryan and Rikard Ekstrand.
FPA Capital Funds (MUTF:FPPTX) maximizes its returns by purchasing securities based on potential value and holding on to them until full value can be realized, which averages about five years. Required criteria for the companies they pick include a long history of profitability and a first rate management team, among other things.
Greenhaven Road Capital commentary for the third quarter ended September 30, 2022. Q3 2022 hedge fund letters, conferences and more Dear Fellow Investors, The Fund is enduring its worst drawdown since inception. We were down again in the third quarter, bringing year -to-date returns to approximately -59%. Returns vary by . . . SORRY! This Read More
In many cases, to ensure they get the best company at the lowest valuations, the fund will pick unpopular industries or companies. When stock valuations plummeted last quarter, they spent more on stocks than at any other time since 2008. The portfolio is now 29 percent cash and liquid assets, with 25 in securities and net assets totaling $1.2 billion.
The fund’s managers only bought one new stock in the fourth quarter, but did reduce many holdings, including their Amerigroup Corporation (NYSE:AGP) stake. They also continue to hold Oshkosh Corporation (NYSE:OSK), which is one of their larger holdings.
Amerigroup Corporation (NYSE:AGP) is a Fortune 500 company that manages healthcare programs funded by the public for underprivileged families. The company’s goal is to provide quality healthcare for their two million members at the lowest possible cost to taxpayers. They don’t deny coverage to people with pre-existing medical conditions and don’t use individual underwriting.
The company had a dramatic the third quarter in 2011. It’s stock price plunged 68 percent from July 28 to August 8. This drastic drop came after reports of lower earnings than had been expected. This resulted in a net income of $44.3 million, equal to $0.83 per diluted share, compared to the second quarter of 2010 when the the net income was $67.2 million, equal to $1.31 per diluted share, and the first quarter of 2011 which saw a $70.5 million net income, or $1.37 per diluted share. The drastic drop was primarily caused by a retroactive premium adjustment in Georgia, equaling to approximately $13.8 million.
In spite of this, overall revenues actually increased year over year by 6.3 percent. The problem in the State of Georgia occurred when Amerigroup Corporation (NYSE:AGP) realized the state wasn’t merging duplicate member records. States frequently assign more than one Medicaid number to members, which often results in premiums being paid more than once and multiple member records. Typically, states will correct this duplicity. Amerigroup Corporation (NYSE:AGP) launched an investigation into this issue and discovered systemic problems in record-keeping dated as far back as 2006, when the program began. The issue was mostly resolved by the end of the third quarter, and shares went up when Amerigroup Corporation (NYSE:AGP) reported receiving $14.0 million in revenue from retroactive premiums. Once all the dust cleared, the third quarter of 2011 saw a net income increase to $48.1 million, or $0.96 per diluted share, versus $44.3 million, or $0.82 per diluted share, for the previous quarter.
FPA Funds grabbed the opportunity to buy Amerigroup Corporation (NYSE:AGP) shares when the stock prices dropped in the third quarter of 2011. They bought 443,100 shares for an average cost of $53 per share. Then added to this in the fourth quarter 2011, with another 496,800 shares for about $52.50 per share. Oshkosh Corporation (NYSE:OSK) designs and builds special use vehicles for defense operations, trucks for laying concrete, garbage trucks and emergency access equipment in 130 countries. Their equipment is marketed in high demand geographic regions, or where value added features can be sold at a price premium. Oshkosh Corporation (NYSE:OSK) offers customers equipment, replacement parts, equipment servicing and financing.
Like Amerigroup Corporation (NYSE:AGP), Oshkosh Corporation (NYSE:OSK) also suffered a significant drop in share prices recently. During a 52-week period prices ranged from $14.07 to $40.11. FPA Funds once again seized the opportunity immediately. First purchasing 576,000 shares in the second quarter of 2011 and then in the third quarter, an additional 669,026 shares for an average cost of $22 per share. For $20 per share they added another 21,874 shares in the fourth quarter. Oshkosh Corporation (NYSE:OSK) share price started to drop in July when third quarter results were released. Net sales saw a decrease in sales from $2.44 billion from the same period the year before to $2.02 billion. This reduced earnings to $68 million, or $0.75 per share, down from earnings of $211.2 million, or $2.31 per share the previous year.
U.S. spending cuts in the defense sector has forced the company to reposition itself and focus more on non-defense markets. Over the past fifteen years, the company has provided shareholders with more than 18.5% in annualized returns. It has also increased its revenue from $413 million to $7.6 billion, CAGR of about 21%. The main strategy behind FPA Funds is to take advantage of relatively strong businesses experiencing a crisis, but have the potential to recover and climb back up to the top.