The Success Story of the FPA Contrarian Value Strategy: 6 Decisions that Shaped its History
Insight from Steven Romick, Sub-investment advisor of the Nedgroup Investments Global Flexible Fund
The FPA Contrarian Value Strategy, founded by its CEO Steven Romick in 1993 has emerged as a shining example of long-term investment success. The philosophy of this strategy is what underpins the investment decisions of the Nedgroup Investments Global Flexible Fund, so, as we celebrate 10 years of Steven Romick and FPA managing our fund, it’s a great time to look back on the history.
Over the years, Romick's astute decision-making and focus on capital preservation have helped the fund weather multiple market cycles and deliver solid returns. With time to reflect, attribute this to six pivotal decisions that contributed to the long-term success of the strategy.
1. Navigating the Dotcom Bubble:
In the late 1990s, as the dotcom bubble reached its peak, we made the bold decision to avoid overvalued tech growth companies. By sidestepping this euphoria, we managed to protect investors' capital when the bubble eventually burst. This decision demonstrated the team's commitment to value investing principles and their ability to resist market hype.
2. Recognising the Impending Financial Crisis:
Prior to the 2007-2008 financial crisis, we eliminated bank holdings due to questionable assets and excessive leverage in the sector. This proactive move helped shield the fund from the devastating impact of the crisis, preserving investor capital when many other funds suffered significant losses. The focus on risk management and rigorous analysis played a crucial role in this decision.
3. Opportunistic Investments During the Financial Crisis:
During the depths of the 2008-2009 financial crisis, we took advantage of market weakness and increased the fund's exposure to high-yield and distressed debt. By investing in these assets when their prices were severely depressed, we positioned ourselves for substantial gains as the market rebounded. This contrarian approach demonstrated Romick's ability to identify attractive opportunities amid market turmoil.
4. Embracing Quality Companies at Reasonable Prices:
In 2011, we expanded exposure to higher-quality companies and foreign-domiciled businesses. This strategic shift allowed us to capture the growth potential of well-managed companies that had fallen out of favour with other value investors. This marked an adaptation of our investment approach – to focus on the quality of businesses rather than solely on traditional value metrics. We acknowledged that it’s important to change with changing market dynamics.
5. Managing the Impact of COVID-19:
In 2020, as the COVID-19 pandemic wreaked havoc on global markets, we initially misread the short-term market and economic impact. However, we quickly adjusted the strategy and capitalised on the market's decline by increasing exposure to quality businesses. As a result, the portfolio bounced back strongly as the resilience and the quality of its holdings shone through.
6. Avoiding Long-duration Bonds in Rising Rate Environment:
In 2022, we steered clear of long-duration bonds, anticipating a rise in interest rates. By avoiding these assets and holding interest rate derivatives, we were able to protect investors from potential impairments resulting from higher rates.
Through these six pivotal decisions, we have navigated through various market challenges, identifying opportunities, and avoiding pitfalls. It is this ability to adapt their investment approach, seize attractive opportunities during times of crisis, and protect investors' capital that has cemented the FPA Contrarian Value strategy’s status as a standout performer.
This comes through clearly in the track record of the Nedgroup Investments Global Flexible Fund which FPA have been managing since 2013. Earlier in the year, the Fund was awarded the 2023 Lipper award in the UK, Europe and Switzerland for the best fund over 10 years in the Mixed Assets USD Flexible Global category. Based on Lipper's quantitative, proprietary methodology, the awards reflect a truly independent and uncompromised assessment of fund performance These awards are based on consistent risk-adjusted performance relative to the peer group in each region so truly a testament to the success of the strategy.