First Pacific Advisors, LLC

Transcription

1 FPA Paramount Fund, Inc. (FPRAX) First Half 2018 Webcast Presentation Presented by: Gregory Herr, Portfolio Manager Pierre Py, Portfolio Manager

2 Fund highlights Global mandate Minimum U.S. and International weight of 20% Broad universe and benchmark agnostic Seeks to invest across market caps*, sectors, geographies Bottom-up Select and value companies based on fundamentals. Look for high quality Downside focused Avoid low quality and high leverage. Buy at a discount to fair value Research-based Portfolio is output of research. Discounts dictate portfolio weightings Concentrated Focus on best ideas - typically holdings Long-term approach Five-year expected average holding period *The Fund will primarily invest in companies with a minimum $2B market capitalization at purchase. Please refer to the prospectus carefully before investing. Please refer to the end of the presentation for important disclosures. 2

3 Performance net of fees Trailing Performance (%) As of Date: 6/30/18 10 Years* 5 Years* Since 9/1/13* 3 Years 1 Year YTD QTD FPA Paramount Fund, Inc MSCI ACWI H18 performance benefitted from several factors. Strong performance came broadly across technology holdings. Takeover activity drove strongest performer. Several retailers performed well. Several other factors detracted from 1H18 performance. Exposure to economic weakness in Latin America impacted worst performer. Weak volume growth and reimbursement concerns weighed on some U.S. healthcare companies. Several strong performers in prior periods weighed on results. Fund may underperform in the short term. Investors encouraged to evaluate performance over multi-year periods. Calculated using Morningstar Direct. Periods greater than one year are annualized. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained at or by calling toll-free, Expense ratio as of most recent prospectus is 1.29%. *The Fund transitioned to its current investment strategy on September 1, Performance prior to that date reflects performance of the prior portfolio managers and investment strategy and is not indicative of performance for any subsequent periods. Please refer to the end of the presentation for important disclosures. 3

4 Key performers* 1/1/18 through 6/30/18 Performance 1/1/18 through 6/30/18 Performance Best performers Strong performer - Twenty-First Century Fox: Based in the U.S. Fox operates a global media business. During the fourth quarter of 2017, the company announced an agreement to sell its film, TV studios and some of its TV networks to Disney. Comcast made a separate offer for the same businesses, and Disney responded with a higher counteroffer. Worst performers Twenty First Century Fox 45.11% Ambev % Scout % Sodexo % PageGroup 19.49% MEDNAX % Booking Holdings 16.65% Compagnie de Saint Gobain % Microsoft 16.31% Prosegur Comp Seguridad % Weak performer - Ambev: Based in Brazil. Ambev is the country s leading beer company, as well as Pepsi s exclusive bottler. Brazil has suffered a severe economic downturn, resulting in high unemployment and political paralysis. Ambev s share price has suffered due to weak sentiment. * Represents the percentage of the issuer's share price change from 1/1/18 to 6/30/18. Portfolio composition will change due to ongoing management of the Fund. The percentage price change does not equate with the performance of the holding in the Fund s portfolio. In addition, key performers are presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented. As of 6/30/18, the key performers and corresponding position sizes were as follows: Twenty First Century Fox: 3.2%; Scout24: 2.0%; PageGroup: 2.5%; Booking Holdings: 2.7%; Microsoft: 3.2%; Ambev: 2.4%; Sodexo: 2.6%; MEDNAX: 1.4%; Compagnie de Saint Gobain: 2.6%; Prosegur Comp Seguridad: 1.7%. Past performance is no guarantee of future results. Please refer to the end of the presentation for important disclosures. 4

5 Purchases Made several new purchases in period, including In first quarter: Capgemini: Based in France. One of the world s leading global information technology consulting, outsourcing and professional services company. Grandvision: Based in the Netherlands. Sells and distributes prescription vision correction products. IMCD: Based in the Netherlands. A global distributor of specialty chemicals and food ingredients. ISS: Based in Denmark. ISS is a global facilities services company. Randstad: Based in the Netherlands. A leading global employment recruiter for temporary and permanent staffing. In second quarter: Air Liquide: Based in France, the company is a leading global producer of industrial gases. Added to several existing holdings. Portfolio composition will change due to ongoing management of the funds. As of 6/30/18, the securities mentioned and corresponding position sizes were as follows: Capgemini: 2.8%; Grandvision: 2.5%; IMCD: 2.7%; ISS: 2.6%; Randstad: 2.6%; Air Liquide: 1.7%. Please refer to the end of the presentation for important disclosures. 5

6 Sales Sold out of several positions in period, including In first quarter: Ansell: Based in Australia, manufactures and sells gloves and other protective clothing. Howden Joinery: Based in the UK, Howden Joinery designs, manufactures and sells fitted kitchens. Swatch: Based in Switzerland, manufactures watches, watch components and jewelry. Novo Nordisk: Based in Denmark, is a leading global manufacturer of pharmaceutical products to treat diabetes. Worldpay: Based in the U.S., Worldpay is a leading merchant acquirer and online payments processing company. In second quarter: Ashtead: Based in the UK, Ashtead is a leading equipment rental company in the U.S. and the UK. Amadeus: Amadeus, based in Spain, is a leading global transaction processor for the travel and tourism industries. WPP: Based in the UK, WPP is a leading global advertising, media management, public relations and communication services company. Also trimmed several holdings whose stock prices have partly converged with assessment of fair value. Portfolio composition will change due to ongoing management of the funds. Please refer to the end of the presentation for important disclosures. 6

7 Portfolio profile as of June 30, 2018 Geographic allocation (% of assets invested): Pacific Basin 3.3% Emerging Markets 10.7% Sector allocation (% of assets invested): Industrials Information Technology Consumer Discretionary Consumer Staples Health Care Financials Energy North America 25.7% 2% 3% 6% Europe 60.3% 20% 19% 18% 28% 0% 10% 20% 30% Overview: Circa 98% invested 45 disclosed positions. Top 10 account for about ~28% of total assets $87bn weighted average market cap (approx. $1bn to >$800bn) Geographic Analysis: Most exposure to Europe and U.S. Geography agnostic Sector Analysis: Favor capital-light businesses including services, robust industrials, and consumer goods. No exposure to banks Technology exposure reflects strength of fundamentals. Not a call on technology developments Sector agnostic Source: Capital IQ. Sector classification scheme reflects GICS (Global Industry Classification Standard). Portfolio composition will change due to ongoing management of the Fund. Please refer to the end of the presentation for important disclosures. 7

8 Oracle Corp. Leading global software provider of mission-critical database and enterprise applications. Large, diversified installed base produces recurring revenue stream (>80% revenues). High profitability led by software support (>60% of Oracle software revenues, and >90% Gross Margins). Profitability combined with limited capex spending and negative working capital produce ROCE ~30% (including Goodwill). Balance sheet net-cash each of last 5 years. Strong free cash flow generation. Founder owns 25% of company. ~80% of cash flow returned through dividends and share repurchases. Industry in transition from on premise to cloud. Customers receive lower costs, reduced complexity and improved security. Oracle captures more of customers spending and increases addressable market by selling to smaller businesses. Oracle response. Oracle in early stages of customer transition Applications ~60% on premise, Database ~93% on premise. Rewrote code, created new autonomous database. Early results good, but remain small portion of total. Risk/reward appears favorable. Market sentiment cautious on sustainability and growth. Paid to wait with recurring revenues and return of cash flow. Expect transition to accelerate over next 2-3 years. Selling at 9x operating profit, an 8% free cash flow yield and a 1.6% dividend yield. As of June 30, Source: FPA This case study is being shown only as an illustration of FPA's investment process and is not a recommendation for any particular type of security, transaction or sector. It should not be assumed that any transaction in the future will be profitable. References to specific securities, transactions or sectors should not be construed as recommendations by FPA, or any fund managed by FPA. Please refer to the end of the presentation for important disclosures. 8

9 Investment philosophy We are long-term value investors. We look for well-run, financially strong, high-quality businesses that can be purchased at a discount to their intrinsic values. Price Sell Investment Decision Time *Chart is a hypothetical example to show our Investment Philosophy and is not an actual Fund holding. Buy Investment Decision Investment Candidate: Continued value creation over time discount to estimated intrinsic value Intrinsic value line. Discount to intrinsic value line. 9

10 Question & Answer

11 Important Disclosures These slides are intended as supplemental material to the Second Half 2017 FPA Paramount Fund audio presentation that is posted on our website fpa.com. It is important to understand that the views expressed on these slides and in the accompanying audio presentation are as of the date presented (February 1, 2018) and are subject to change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be construed as a recommendation to purchase or sell such securities, and any information provided is not a sufficient basis upon which to make an investment decision. The information provided does not constitute, and should not be construed as, an offer or solicitation with respect to any securities, products or services discussed. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments. This information and data has been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. You should consider the Fund s investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's objective and policies, and other matters of interest to the prospective investor. Please read this Prospectus carefully before investing. The Prospectus may be obtained by visiting the website at by at crm@fpa.com, toll-free by calling or by contacting the Fund in writing. Past performance is not a guarantee of future results. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. The Fund s expense ratio as of most recent prospectus is 1.29%. Current month-end performance data may be obtained by calling toll-free, Paramount Fund transitioned to its current investment strategy on September 1, Performance prior to that date reflects performance of the prior portfolio managers and is not indicative of performance for any subsequent periods. Portfolio composition will change due to ongoing management of the Fund. Any mention of individual securities or sectors should not be construed as a recommendation to purchase or sell such securities, and any information provided is not a sufficient basis upon which to make an investment decision. It should not be assumed that future investments will be profitable or will equal the performance of the security examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and other depository receipts, which are subject to interest rate, currency exchange rate, economic and political risks. Foreign investments, especially those of companies in emerging markets, can be riskier, less liquid, harder to value, and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it more difficult for the Fund to value the securities. Differences in tax and accounting standards, difficulties in obtaining information about foreign companies, restrictions on receiving investment proceeds from a foreign country, confiscatory foreign tax laws, and potential difficulties in enforcing contractual obligations, can all add to the risk and volatility of foreign investments Small and mid cap stocks involve greater risks and they can fluctuate in price more than larger company stocks. Groups of stocks, such as value and growth, go in and out of favor which may cause certain funds to underperform other equity funds. A non-diversified fund may hold fewer securities than a diversified fund because it is permitted to invest a greater percentage of its assets in a smaller number of securities. Holding fewer securities increases the risk that the value of the fund could go down because of the poor performance of a single investment. 11

12 Important Disclosures cont d Value securities, including those selected by the Fund s portfolio managers, are subject to the risks that their intrinsic value may never be realized by the market and that their prices may go down. In addition, value style investing may fall out of favor and underperform growth or other styles of investing during given periods. Securities selected by the portfolio managers using a value strategy may never reach their intrinsic value because the market fails to recognize what the portfolio managers consider to be the true business value or because the portfolio managers have misjudged those values. Indices are unmanaged, do not reflect transaction costs, investment management fees or other fees and expenses that would reduce performance in an actual account, and not available for direct investment. It is not possible to invest directly in an index. The account had held, and is expected to continue to hold, underlying securities that are not included in the benchmark and FPA makes no representation that the account is comparable to the benchmark in composition or element of risk involved. Index Definitions The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 44 country indices comprising 23 developed and 21 emerging market country indices. Indices do not reflect any commissions or fees which would be incurred by an investor purchasing the underlying securities. You cannot invest directly in an Index. Other Definitions Allocation Effect: How the weighting of the groups affect the portfolio's performance. EBITA (Earnings before interest, taxes and amortization) is a financial indicator used widely as a measure of efficiency and profitability. The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI,