Steven Romick (Trades, Portfolio) recently released the latest portfolio updates for the FPA Crescent Fund for the first quarter of 2023, which ended on March 31.
The FPA Crescent Fund operates under First Pacific Advisors (Trades, Portfolio) and is managed by Steven Romick (Trades, Portfolio), Brian A. Selmo and Mark Landecker. The fund’s objective is to seek returns with less risk than the market while avoiding permanent loss of capital. Its strategy combines deep research with a focus on strong fundamentals, attractive risk-reward and diversification across geographies, market caps, sectors and capital structure.
The FPA Crescent Fund’s top buy for the quarter was Heineken Holding NV (XAMS:HEIO, Financial), a major Dutch brewing company, while its biggest sell was Univar Solutions Inc. (UNVR, Financial), an American chemicals company. The fund also notably slashed a chunk off of one of its top holdings, building materials company Holcim Ltd. (XSWX:HOLN, Financial), and added more shares of International Flavors & Fragrances Inc. (IFF, Financial).
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Heineken Holding
The fund established a new stake worth 763,425 shares in Heineken Holding (XAMS:HEIO, Financial), giving it a 1.22% weight in the equity portfolio. During the quarter, shares traded for an average price of 86.20 euros ($94.59).
Heineken is a holding company for half of the issued share capital of Heineken NV (XAMS:HEIA, Financial). Despite the split trading structure, both stocks represent Heineken, the third-largest beer brewer in the world. Founded in 1864, the Dutch brewer focuses on premium branding. Its lineup includes Amstel, Desperados, Sol, Tiger, Birra Moretti, Lagunitas and Edelweis.
The company’s unusual stock structure means that both Heineken Holding and Heineken NV have the same net asset value. Despite this, Heineken NV’s share price has grown faster than its sister listing’s share price ever since the stock market began to rebound from the Covid collapse. The reason for this is likely due to the unique trading attributes of the holding company. Heineken Holding has lower trading volume than Heineken NV, and it also does not have options trading, so divergence in a time of market turmoil makes sense. This gives Heineken Holding room to close the gap as well as a better dividend yield (2.01% versus Heineken NV’s 1.68%).
Univar Solutions
The fund sold out of its 3,402,938-share Univar Solutions Inc. (UNVR, Financial) holding, which previously took up 1.87% of the equity portfolio. Shares averaged $33.92 during the quarter.
Washington-based Univar Solutions is a global chemicals and ingredients distribution company, providing companies with logistics and value-added services to improve their supply chains. In essence, it’s like an e-commerce platform for companies that need chemicals or food ingredients to mass-produce their goods.
Apollo Funds, a private equity company under Apollo Global Management (APO, Financial), struck a deal to buy Univar Solutions for $8.1 billion in cash on March 14. Investors will get about $36.15 per share, so the stock has pretty much reached its maximum price already, allowing the position to be safely sold so that the proceeds can be reinvested elsewhere.
Holcim
Holcim (XSWX:HOLN, Financial) was previously the fund’s top holding, but after a 20.8% reduction to 4,554,944 shares in the first quarter, it became the second-largest holding. The reduction trimmed the equity portfolio by 1.07% at the quarter’s average share price of 55.19 Swedish kronor ($5.35).
Holcim is a Swiss-French building materials company specializing in innovative and sustainable building solutions. With the goal of eventually helping the building sector reach net-zero, Holcim operates in over 70 countries, manufacturing and selling materials such as cement, aggregates, ready-mix concrete and asphalt.
While the company’s revenue per share has been slow-growing, its earnings per share has grown at a faster clip. The construction industry is a cyclical one, and the ongoing economic weakness around the world could slow down Holcim’s growth in the near term, but in the long term, it could also receive a boost from increased investments in net-zero building.
International Flavors & Fragrances
The fund upped its stake in International Flavors & Fragrances (IFF, Financial) by 8.81% for a total holding of 1,968,793 shares, adding 0.26% to the equity portfolio weight. Shares traded for an average price of $99.40 during the quarter.
International Flavors & Fragrances is a New-York based company that produces a variety of flavors, fragrances, cosmetic actives and other chemicals for sale around the world. It has facilities in more than 44 countries.
The company has been struggling to digest its 2021 acquisition of DuPont’s (DD, Financial) nutrition and biosciences division. The expensive deal was not as immediately value-accretive as International Flavors & Fragrances had hoped, and with the debt from said deal weighing on its balance sheet, it decided to take enormous amortization charges in its fiscal year of 2022, resulting in a GAAP loss per share of $7.32 for the year compared to non-GAAP (excluding amortization) earnings per share of $5.42. These struggles have caused shares to sink into the modestly undervalued range according to the GF Value chart.
See also
As of the quarter’s end, the fund consisted of 103 common stock positions valued at $5.73 billion. The top holding was Analog Devices Inc. (ADI, Financial) with 5.24% of the equity portfolio, followed by Holcim with 5.12% and Comcast Corp. (CMCSA, Financial) with 4.69%.
Other significant trades that the fund made during the quarter included reductions to Broadcom Inc. (AVGO, Financial) and Howmet Aerospace Inc. (HWM, Financial) and an addition to Nintendo Co Ltd (TSE:7974, Financial). The fund also exited its positions in special purpose acquisition companies Forest Road Acquisition Corp II (FRXB.U, Financial) and TLG Acquisition One Corp. (TLGA, Financial).
In terms of sector weighting, the fund was most invested in communication services, financial services and technology. There were no significant changes in sector weighting during the quarter.
