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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"FPA New Income Fund gained 2.61% in Q1 2025 while navigating tariff uncertainty and declining Treasury yields. The fund focused on longer-duration, High Quality bonds and avoided Credit investments due to inadequate risk compensation."
FPA New Income Fund returned 2.61% in Q1 2025 amid a challenging environment marked by tariff uncertainty and economic concerns. The Federal Reserve held rates steady while Treasury yields declined 12-43 bps as markets anticipated potential rate cuts. The fund maintained its strategy of investing in longer-duration, High Quality bonds rated single-A or higher, extending Treasury duration and purchasing agency-guaranteed mortgage pools, non-agency RMBS, and CMBS with weighted average duration of 5.3 years. Credit exposure remained minimal at 4.4% as spreads provided inadequate compensation for risk. Post-quarter tariff announcements significantly increased market volatility and created additional uncertainty regarding economic growth, inflation, and asset safety. The manager believes current positioning provides multiple paths to attractive returns through downside protection and upside optionality. Cash was reduced from 5.3% to 3.3% as the fund deployed capital into High Quality bonds while avoiding speculative Credit investments until prices better reflect heightened risks including potential tariff-induced permanent capital impairment.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The manager demonstrates high conviction in their duration strategy and High Quality bond focus, with clear rationale for avoiding Credit investments. They have a well-defined 100 bps duration test and strong views on positioning despite uncertainty.
Growth Outlook
The manager expresses concerns about tariff uncertainty creating significant challenges for the economy and markets, describing the outlook as 'tariff-ying' and noting storm clouds on the horizon. However, they also see opportunities in longer-duration bonds at current yields.
Risk Appetite
The fund maintained a defensive posture by avoiding Credit investments and focusing on High Quality bonds, though they did extend duration and deploy some cash. The approach is cautious and risk-managed rather than aggressive.
Capital Deployment
Cash was reduced from 5.3% to 3.3% (2 percentage point reduction) indicating moderate deployment activity. The fund extended Treasury duration and bought High Quality bonds while avoiding Credit investments.
Forward Guidance
The manager plans to remain selective and avoid speculative approaches, waiting for better compensation for Credit risks. They express willingness to invest opportunistically but emphasize caution given uncertainty.
Language Signal
Language includes concerns about 'storm clouds,' 'tariff-ying' outlook, 'significant uncertainty,' and risks of 'permanent impairment of capital.' However, balanced with opportunities in longer-duration bonds and multiple paths to attractive returns.
Perceived Risk
High perceived risk due to tariff uncertainty, potential permanent capital impairment, questions about dollar reserve status, and increased market volatility. The manager explicitly discusses broader range of negative outcomes.
Opportunity Density
Limited opportunities identified in current environment, with Credit markets deemed inadequately priced and focus on selective High Quality bond investments. Manager waiting for better risk compensation before deploying more capital.
Time Horizon
Focus on longer-duration bonds with 5.3-year average duration and emphasis on long-term returns suggests patient capital approach. Strategy designed for multiple paths to attractive returns over time rather than short-term gains.
