Red-Hot Fund Manager Says It’s Time to Cool It
Jeff Vinik’s Fidelity Magellan stock fund has $40 billion in assets, and a bullish Vinik will gladly take more if it’s given to him.
Not so Robert Rodriguez. He will close his West Los Angeles-based FPA Capital fund’s doors to new money when assets reach $280 million--0.007% of Magellan’s size--probably in a week or so.
In the wake of Thursday’s U.S. stock plunge, maybe the market is topping out and maybe it isn’t. Rodriguez says all he knows is that “it’s more difficult to find ideas” for his shareholders’ dollars. With 17% of the fund now sitting in cash--the highest ever for FPA Capital--Rodriguez doesn’t think it makes sense to take on new accounts.
“My first loyalty is to my shareholders who’ve been with me for many years,” he says.
Were it not for his track record, Rodriguez’s decision to close FPA Capital might easily be dismissed as a cop-out. But the amiable 46-year-old is one of the mutual fund industry’s true stars. Over the last 10 years he has managed a stock fund and a bond fund, and the performance of both has been stellar:
* FPA Capital’s 10-year total return through 1994 was 429%, versus 283% for the Standard & Poor’s 500 stock index (and 421% for Magellan). So far this year FPA Capital is up 18%.
* The $164-million-asset FPA New Income fund gained 183% in the 10 years through 1994, compared to 147% for the average general bond fund. New Income made money last year despite the worst bond market in this century. And so far this year the fund has tacked on another 7.2%.
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Now, however, Rodriguez’s posture toward stock and bond markets is decidedly defensive.
The typical Rodriguez stock sells for a low price-to-earnings ratio and has a healthy balance sheet and strong management behind it. A contrarian, he likes to buy when what he judges to be a temporary problem has slammed a stock. And he buys with the intention of holding for years , not weeks or months.
FPA Capital’s current portfolio of about 30 stocks is best described as eclectic, and Rodriguez says he’s still content to hold onto many of his big positions, including financial services firm Green Tree Financial, computer disk drive maker Seagate Technology, recreational vehicle maker Coachmen Industries and shoe giant Reebok.
If he thought the market was chock full of such opportunities, he says, he wouldn’t be closing FPA Capital to new investors. But the reality is that “I’ve been selling securities faster than I’ve been buying,” Rodriguez says. Maybe a deep market correction will change that, he says, in which case he could always reopen the fund. “But I don’t think that will happen for some time,” he admits.
As for bonds, “I don’t see a tremendous amount of value in the debt market today, either,” Rodriguez says. He was a big buyer of longer-term Treasury bonds late last year, when yields were in the 8% range. Now, with yields down to the 6% to 7% range, Rodriguez has been selling bonds, boosting FPA New Income’s cash level to 27%.
Whatever economic slowdown is in the offing, he says, is already reflected in bond yields. “At the 6% level, you have to be right about a lot of things going forward,” Rodriguez says. Inflation will have to stay low, Congress will truly have to set a course for a balanced federal budget, and the dollar will have to stabilize or rise, he figures. Maybe all of that comes true, but “I’m not good enough to know that. I’ll let other people make that bet,” he says.
For Rodriguez and his colleagues at FPA (First Pacific Advisors), their unwillingness to deviate from long-term “value” investing has kept their profile relatively low and their firm fairly small. Partly because the funds are sold only through brokers, and at steep commissions, they haven’t been inundated with cash despite their mostly enviable performance.
Though now a part of Boston-based money-management giant United Asset Management, the four FPA funds (the other two are stock funds FPA Paramount and FPA Perennial, managed by two of Rodriguez’s peers) operate independently of UAM. “They leave us alone,” Rodriguez says. The decision to close FPA Capital to new money, he says, was purely his.
“I think the most lethal thing for money managers is uncontrolled growth,” Rodriguez says.
That is not the way most managers think, of course, but that’s hardly surprising: In the fund business, the more dollars you manage, the bigger your fee intake. Rodriguez concedes that he may be limiting his salary by limiting the size of his funds, but he says he has made far more over the years as a significant shareholder of FPA Capital than in salary, anyway. “The way I look at it, I’m getting paid to manage my own money,” he says.
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Tough to Beat
Robert Rodriguez, who manages the FPA Capital stock fund and FPA New Income bond fund in West Los Angeles, has steered both to handsome gains since 1985. 10-YEAR TOTAL RETURN:
FPA Capital: +429%
S&P; 500: +283%
FPA New Income: +183%
Avg. general bond fund: +147%
Source: Lipper Analytical Services
