FPA Queens Road Small Cap Value Fund Institutional Class · NASDAQ:QRSIX
FPA Queens Road Small Cap Value Fund Institutional Class — FPA Crescent Fund — Q1 2016 Earnings Presentation
28 slides from FPA Queens Road Small Cap Value Fund Institutional Class's earnings presentation, Apr 28, 2016
Slide 1: FPA Crescent Fund First Quarter 2016 Webcast Presentation
L C , L r s i s o d v c A i FPA Crescent Fund c i f FPACX* P a First Quarter 2016 rs t Webcast Presentation F i Presented by: Steven Romick, Mark Landecker, and Brian Selmo *Charles Schwab Ticker: FPC1Z
Slide 2: Philosophy
C Philosophy L L s , Seek long-term, equity-like returns with less risk than the stock market while avoiding permanent impairment of capital r i s o v Absolute Return Focus Flexible Approach Ad i c Deep Research c i f P a rs t F i 1
Slide 3: Performance
C Performance L L , 60% S&P 500/ FPA Crescent S&P 500 40% Barclays s Aggregate r Annualized returns 10.26% 8.98% 7.92% o Standard deviation 10.18% 14.74% 9.01% Sharpe ratio 0.52 0.27 0.32 $120,000 vi s d $100,000 FPACX A $92,916 $80,000 S&P 500 c $71,171 i $60,000 f 60% S&P 500/ 40% i BC Agg $56,981
Slide 4: Performance
C Performance L L , Trailing Performance (%) Market Cycle Performance s 3/25/00- 10/10/07- As of Date: 3/31/2016 Inception* 20 Years 15 Years 10 Years 5 Years 3 Years 1 Year YTD QTR r 10/9/07 3/31/16 FPA Crescent 10.26 9.49 9.66 6.55 6.71 5.84 -2.39 -0.19 -0.19 14.70 5.91 o S&P 500 8.98 7.98 5.99 7.
Slide 5: Market cycle returns
C Market cycle returns 3/25/2000 – 10/9/2007 10/10/2007 – 3/31/2016 L L , $30,000 $18,000 s FPACX S&P 500 Russell 2500 FPACX S&P 500 MSCI ACWI r $16,000 o $25,000 $14,000 i s $20,000 $12,000 v $10,000 d $15,000 $8,000 A $10,000 $6,000 f i c $5,000 $4,000 c i a Annualized Max Annualized Max Return Dr
Slide 6: Q1 2016: Winners and Losers
C Q1 2016: Winners and Losers L L Winners Performance Contribution Percent of Portfolio Losers r s , Performance Contribution Percent of Portfolio s o Oracle 0.60% 5.14% Citigroup -0.55% 2.72% vi Aon 0.47% 3.76% Undisclosed -0.42% 0.61% d Yahoo/Alibaba (paired trade)* 0.21% 0.56% AIG -0.36% 2.97% A
Slide 7: Geographic exposure
C Geographic exposure L L Source r s , o Domicile Revenue i s North America 75.1% 41.7% v South America / Latin America 0.0% 2.2% d Uncategorized Americas - 12.0% A Western / Northern Europe 16.0% 14.2% Central / Eastern Europe 8.1% 1.7% fi i c Asia / Pacific -3.8% 5.8% Middle East / Africa 4.6% 9.4
Slide 8: Portfolio characteristics
C Portfolio characteristics L L FPACX Q1 2016 FPACX Average r s , S&P 500 o Market Capitalization, Wgt. Avg. (in millions)1 $102,550 $31,081 $141,810 Market Capitalization, Median (in millions)1 vi s$29,173 $9,565 $18,592 d Price/Earnings2 21.5 16.8 20.5 A Price/Book3 1.4 1.7 2.8 c Debt/Capital4 -15
Slide 9: Portfolio allocation
C Portfolio allocation L L Risk Asset Q1 2016 Year End 2015 r s , Average Since Inception o Common stock, long 60.9% 59.5% 53.4% Common stock, short -3.3% vi s -3.6% -4.7% d Corporate debt 4.9% 3.9% 12.2% A Mortgages 0.9% 1.0% 0.6% c Other 0.4% 0.4% 0.3% fi i Exposure, Net 63.8% 61.2% 63.3% c No. of
Slide 10: Price-Earnings Ratio
C Historic P/E ratio using 10-year average earnings L L s , 50 18% r Apr. 1, 2016 P/E 10-Year UST o 45 16% Current 26.2 1.82% Since 1881 16.7 4.59% s 40 i Since 1930 17.6 5.08% 14% Since 1950 19.0 5.80% v 10-Year US Treasury Notes 35 Since 1970 19.6 6.64% 12% Price-Earnings Ratio d 30 10% A 25 8% fi
Slide 11: Stock valuations are historically high
C Stock valuations are historically high L L s , S&P 500 valuations at most recent market peaks vs. year-end 2015 o Price/Earnings Price/Sales r Price/Book i s (median) (median) (median) v March 31, 2000 18.9 1.4 2.9 d September 30, 2007 18.2 1.7 3.1 A December 31, 2015 18.7 2.1 2.9 i f i c a c t P
Slide 12: Stock valuations are historically high
C Stock valuations are historically high L L s , S&P 500 valuations at most recent market peaks vs. Q1 2016 o Price/Earnings Price/Sales r Price/Book i s (median) (median) (median) v March 31, 2000 18.9 1.4 2.9 d September 30, 2007 18.2 1.7 3.1 A December 31, 2015 18.7 2.1 2.9 i c March 31, 2016 19.
Slide 13: Outstanding government bonds with negative yields
C Outstanding government bonds with negative yields L L r s , i s o d v c A i f i a c t P F i rs Source: ECB, J.P. Morgan. In $trillion. Amount outstanding of bonds trading with a negative yield within the JPM Global Government Bond Index (JPM GBI Broad Index). Converted to USD at April 8, 2016 exch
Slide 14: Anemic U.S. GDP growth
C Anemic U.S. GDP growth L L , Nominal GDP – Rolling 10-year % change r s o 12% i s 11% v 10% d 9% A 8% c 7% i f i 6% c 5% a 4% P 3% t 2% rs 1% i 0% F Source: Federal Reserve Bank of St. Louis. Most recent data as of October 1, 2015. 13
Slide 15: Anemic Europe GDP growth
C Anemic Europe GDP growth L L , Nominal GDP – Rolling 10-year % change r s o 5% vi s d 4% 3% c A i f i c 2% P a t 1% 0% F i 2005 rs 2006 2007 2008 2009 2010 Source: Federal Reserve Bank of St. Louis. Most recent data as of October 1, 2015. 2011 2012 2013 2014 2015 14
Slide 16: No Japan GDP growth
C No Japan GDP growth L L , Nominal GDP – Rolling 10-year % change r s o 0.4% 0.2% vi s Ad 0.0% i c -0.2% -0.4% c i f -0.6% P a rs t -0.8% F -1.0% i 2004 2005 2006 2007 2008 2009 Source: Federal Reserve Bank of St. Louis. Most recent data as of October 1, 2015. 2010 2011 2012 2013 2014 2015 15
Slide 17: Opportunistic high yield exposure
C Opportunistic high yield exposure L L , BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread s vs r FPA Crescent High Yield/Distressed Exposure 20% i s o 35% v 18% d 30% High Yield Option-Adjusted Spread 16% A % of Assets in High Yield 14% 25% i c 12% 20% i f 10% c 15% 8% a 6% 10% P 4
Slide 18: 2015 high yield returns by industry
F Food/Beverages i 6.8% Gaming/Leisure rs Housing 4.4% 4.1% t Healthcare Automotive Source: JPMorgan. As of December 31, 2015. P Cable/Satellite a Financial c Services i f Retail i Consumer Products 1.0% 0.9% 0.8% 0.7% 0.5% 0.4% 0.4% c Technology Diversified Media A Paper/Packaging 2015 high yield r
Slide 19: 2016 Q1 high yield returns by industry
F Metals/Mining i 10.6% Retail 6.5% rs Chemicals 6.0% t Gaming/Leisure Source: JPMorgan. As of March 31, 2016. Utility 5.2% 5.1% P Telecom. a Consumer Products c Industrials 4.0% 3.8% 3.7% i f JPM US HY c i Technology Broadcasting Services 3.3% 3.2% 3.1% 3.0% A Food/Beverages d Cable/Satellite 2016
Slide 20: Flexible approach – net equity exposure in financials
C Flexible approach – net equity exposure in financials L L 20% r s , o 18% i s 16% v 14% d 12% A 10% i c 8% i f 6% c 4% a 2% P 0% rs t F i Figures are presented at each year-end with the exception of the last data point which represents March 31, 2016. 19
Slide 21: Citigroup
C Citigroup L L , Executive Summary s Leading Consumer, Commercial and Investment Bank r $1.7 trillion assets o More than $3 trillion in global transactions daily and more than $13 trillion in assets under custody i s Serves 99% of the world’s Fortune 100 companies d v Well-capitalized. Best f
Slide 22: Citigroup
C Citigroup L L , Caution warranted since bad credit cycle yet to come. r s Credit costs likely to increase, but earnings should be able to off-set increased credit costs. o Reasonable worst case: s • Assume 50% default and 40% recovery on all assets in China, Energy and Metals/Mining, and vi •
Slide 23: Q&A
L C , L r s i s o d v c A i Q&A c i f P a rs t F i
Slide 24: Active security selection drives differentiated returns
C Active security selection drives differentiated returns L L 2007 to 2016 2016 YTD 2015 2014 2013 2012 2011 r s 2010 , 2009 2008 2007 o CAGR s FPACX long equity 9.28% -0.61% -1.04% 13.67% 39.62% 17.69% 6.25% 22.30% 38.39% -38.27% 11.47% S&P 500 6.38% 1.35% 1.38% v 13.69% i 32.39% 16.00% 2.11% 15.06
Slide 25: Flexible approach — FPA Crescent risk exposure & subsequent 2-year return
Flexible approach — FPA Crescent risk exposure & subsequent 2-year return L C 100% , L r s 90% o 80% i s 70% v 60% d 50% A 40% fi i c 30% 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 c Risk # of Quarterly Avg Subsequent Risk # of Quarterly Avg Subsequent a Exposure Periods 2-Yr Return Expo
Slide 26: 5-year rolling returns by market type
C 5-year rolling returns by market type L L , 30% 20% r s s o 10% i FPA Crescent v Most recent period 0% d -10% -20% c A fi i -30% -30% -20% -10% 0% 10% 20% 30% c S&P 500 a Down Market – 5yr Normal Market – 5yr Robust Market – 5yr P average return average return average return below 0% 0-10% above 1
Slide 27: Holdings as of March 31, 2016
C Holdings as of March 31, 2016 Consumer Discretionary 4.75% Industrials 8.37% Corporate Bonds & Notes L L 4.90% , Genting Malaysia Berhad 0.39% Esterline Technologies Corporation 1.08% Bombardier 0.81% Interpublic Group of Companies 0.16% General Electric Co. 1.72% California Resources Corporation
Slide 28: Disclaimer
C Disclaimer These slides are intended as supplemental material to the 1st Quarter 2016 FPA Crescent audio presentation that is posted on our website fpafunds.com. L L , We do want to make sure you understand that the views expressed on these slides and in the accompanying audio presentation are as