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FPA Capital Fund's Top Trades of the 4th Quarter

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GuruFocus.com
·4 min read
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- By James Li

The FPA Capital Fund (Trades, Portfolio), part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), disclosed this week that its top three new buys during the fourth quarter of 2020 were in Horace Mann Educators Corp. (NYSE:HMN), Schweitzer-Mauduit International Inc. (NYSE:SWM) and MSC International Direct Co. Inc. (NYSE:MSM). Despite this, the fund's top sells, which included the closing of its Centene Corp. (NYSE:CNC) and Vonage Holdings Corp. (NASDAQ:VG) positions, outweigh its top buys.


Fund merges with manager of Queens Road Funds

The fund formerly led by value investor Robert Rodriguez announced in July 2020 that it joined forces with Bragg Financial Advisors, advisor to the Queens Road Funds. FPA said in its press release that the two firms "share a common value-oriented investment philosophy" and prudently seek long-term, risk-adjusted returns.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

The joint agreement contemplates that Queens Road fund manager Steve Scruggs will manage the combined portfolio, though FPA will oversee and market the Queens Road Value and Queens Road Small Cap Value funds. Prior to the fund merger, FPA Capital Lead Analyst Dan Kaplan will lead the fund following outgoing fund manager Arik Ahitov's departure from FPA.

Fund quarterly portfolio summary

As of December 2020, the FPA Capital Fund (Trades, Portfolio)'s $143 million equity portfolio contains 44 stocks, with 34 new holdings and a turnover ratio of 64%. The top three sectors in terms of weight are technology, industrials and financial services, representing 22%, 17.18% and 16.87% of the equity portfolio.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

Horace Mann Educators

The fund purchased 140,098 shares of Horace Mann Educators (NYSE:HMN), giving the position 4.12% weight in the equity portfolio. Shares averaged $38.69 during the fourth quarter of 2020; the stock is fairly valued based on Wednesday's price-to-GF Value ratio of 1.01.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

The Springfield, Illinois-based company underwrites and markets a wide range of insurance products to K-12 teachers, administrators and other employees of public schools. GuruFocus ranks the company's profitability 5 out of 10: Although the company's three-year earnings growth rate outperforms over 80% of global competitors, Horace Mann's returns are underperforming more than half of global insurance companies.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

Schweitzer-Mauduit International

FPA Capital purchased 138,445 shares of Schweitzer-Mauduit International (NYSE:SWM), giving the position 3.89% weight in the equity portfolio. Shares averaged $36.01 during the fourth quarter of 2020; the stock is modestly overvalued based on Wednesday's price-to-GF Value ratio of 1.16.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

The Georgia-based company produces premium specialty papers and resin-based products. GuruFocus ranks the company's profitability 8 out of 10, driven by a four-star business predictability rank and profit margins that outperform over 83% of global competitors.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

MSC Industrial Direct

The fund purchased 61,324 shares of MSC Industrial Direct (NYSE:MSM), giving the position 3.62% weight in the equity portfolio. Shares averaged $77.67 during the fourth quarter of 2020; the stock is overvalued based on Wednesday's price-to-GF Value ratio of 1.10.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

GuruFocus ranks the Melville, New York-based industrial distributor's profitability 7 out of 10: The company's profit margins outperform over 80% of global competitors even though three-year revenue and earnings growth rates underperform over 60% of global industrial distribution companies.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

Centene

FPA Capital sold 165,984 shares of Centene (NYSE:CNC), trimming the equity portfolio 9.06%. Shares averaged $63.50 during the fourth quarter of 2020; based on GuruFocus estimates, the fund gained approximately 71.51% on the stock since initially buying shares during the first quarter of 2013.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

GuruFocus ranks the St. Louis-based health care plans company's profitability 8 out of 10 on the back of a 4.5-star business predictability rank despite profit margins and returns underperforming over 60% of global competitors.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

Vonage

The fund sold 881,862 shares of Vonage (NASDAQ:VG), trimming the equity portfolio 8.44%. Shares averaged $12.24 during the fourth quarter of 2020; based on GuruFocus estimates, the fund gained approximately 46.6% on the stock since initially buying shares during the first quarter of 2020.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

GuruFocus ranks the New Jersey-based cloud communication service company's profitability 6 out of 10 on the back of a three-year revenue growth rate that outperforms over 68% of global competitors despite profit margins and returns underperforming over 70% of global telecom companies.

FPA Capital Fund's Top Trades of the 4th Quarter
FPA Capital Fund's Top Trades of the 4th Quarter

Disclosure: No positions.

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This article first appeared on GuruFocus.