To generate rates of return with less risk than the overall market, one portfolio manager suggests diversifying across a basket of asset classes.
The majority of the FPA Crescent Fund is invested in equities, followed by a 30 percent holding in cash. The fund also invests in high-yield bonds, farmland and short positions, said Steven Romick, its portfolio manager.
Renault and Omnicare are among the firm’s holdings.
“What we generally tend to do is to look for dislocation in the markets,” he said. “So we’re looking for that which is out of favor, and there’s a lot that’s out of favor in Europe, particularly in the European automotive business.”
Renault owns stakes in Nissan , Volvo and Daimler.
“If you add up the stake of these companies, which are all public, they exceed the value of Renault,” he said.
Romick said he is currently long Renault’s stock and shorting shares of Volvo and Nissan.
“Basically the market is paying us to own Renault,” he said.
Omnicare is another holding of the Morningstar five-star-rated fund and a “business that’s going to benefit certainly from the aging of America,” Romick said.
The pharmaceutical provider also has a new management team — one that Romick thinks is making the “appropriate investment” in people and technology, which he said was “poorly managed before.”
Romick described another fund holding, farmland, as having many of the same attributes as gold, which many investors use to hedge against inflation.
“It will benefit in an inflationary environment,” he said. “It will benefit if there’s a decline in fiat currencies — particularly the U.S. dollar.”
—By CNBC.com’s Katie Little; Follow Her on Twitter @katie_little
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Disclosures:
Disclosure information was not available for Steven Romick.