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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"FPA Crescent is executing a contrarian pivot away from AI-driven market leaders despite positive long-term technology views, scaling back semiconductor and data center exposure due to expanded valuations and advanced capital cycle stage. The manager is deploying into 14 new AI-agnostic mid-cap businesses at 10-15x earnings and re-entering biotech at half 2020-2021 valuations, prioritizing high-quality industry leaders with strong balance sheets over momentum-driven themes asking difficult sustainability questions."
FPA Crescent gained 7.13% in Q2 2026 and 14.75% over the trailing twelve months, capturing 62.3% of global market returns with 63.8% average net risk exposure. The manager is navigating an increasingly narrow market dominated by AI-related stocks, which now constitute approximately 50% of the S&P 500 and accounted for nearly 90% of index returns over the past six months. While acknowledging AI's transformative potential and real progress in capabilities, the manager expresses significant uncertainty about the sustainability of current capital spending levels and returns on the massive data center buildout, which is projected to double US capacity by end of 2027. They are actively scaling back exposure to direct AI and semiconductor beneficiaries due to expanded valuations and shrinking margins of safety, despite owning these companies for over a decade and believing they will be larger and more profitable in 5-10 years. Instead, the manager is deploying capital into 14 new AI-agnostic mid-cap businesses purchased at 10-15x NTM earnings, including a contrarian re-entry into biotech at valuations half the 2020-2021 levels. The portfolio emphasizes high-quality industry leaders with strong balance sheets, faster growth profiles, and attractive absolute return potential, with the manager willing to look foolish relative to momentum-driven markets while avoiding concentration in themes asking difficult questions about sustainability and returns.
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