FPA and Queens Road Funds form strategic partnership

First Pacific Advisors (FPA), and Bragg Financial Advisors (Bragg), adviser to the Queens Road Funds (Queens Road), have reached an agreement whereby FPA will oversee and market the Queens Road Funds and related institutional separate accounts, while Bragg will continue to manage the Queens Road Funds’ portfolios.

FPA and Bragg share a common value-oriented investment philosophy, prudently seeking superior long-term risk-adjusted returns. In addition, both firms are 100 per cent employee-owned, and principals at both firms invest their capital alongside shareholders in the strategies they manage and are willing to limit the size of the portfolios for the benefit of investors.

Queens Road Small Cap Value (QRSVX) is rated five-stars overall by Morningstar in its Small Value category and has beaten its Russell 2000 Value benchmark net of all expenses by approximately 200 basis points per annum since its inception in 2002. The fund has received a Gold Morningstar Quantitative Rating. Queens Road Value (QRVLX) is rated four-stars overall by Morningstar in its Large Value category and has beaten its S&P 500 Value benchmark net of all expenses since its inception in 2002. Queens Road Value also has received a Gold Morningstar Quantitative Rating.

FPA and Bragg’s agreement contemplates that Steve Scruggs, who leads both Queens Road Funds, will remain the portfolio manager. There will be no changes to his successful, repeatable investment strategy and process.

As a result of the transition, both Queens Road Funds will plan to offer an institutional share class with materially lower expenses, placing them in what is currently the “Below Average” Morningstar fee group in their respective institutional share class categories. Queens Road Small Cap Value’s institutional class expenses will be capped at 0.89 per cent for three years, 25 per cent lower than its current share class’s expenses. Queens Road Value’s institutional class expenses will be capped at 0.65 per cent for three years, more than 30 per cent lower than its current share class’s expenses.

The agreement further anticipates that the Queens Road Funds Board of Trustees will recommend to shareholders that both Queens Road Funds move to the FPA Funds platform, with the Board of Trustees of the FPA Funds elected as trustees of the Queens Road Funds, FPA appointed as Adviser, and Bragg appointed as Sub-Adviser. The transaction is subject to all required regulatory, FPA Funds Board and Queens Road Funds Board and shareholder approvals. If approved, the transaction is expected to close in Q4 2020.

Additionally, Arik Ahitov, a former partner of FPA and former portfolio manager of FPA Capital Fund (FPPTX), has left FPA to pursue other opportunities with ties to international markets. It is expected that the Board of FPA Capital Fund will recommend to shareholders that FPA Capital Fund reorganise into the Queens Road Small Cap Value institutional class once that Fund’s move to the FPA platform is approved by shareholders. As a result, FPA Capital Fund shareholders would have the Bragg team managing the portfolio, and would benefit from the Queens Road Small Cap Value institutional class’ 0.89 per cent expense cap, compared with FPA Capital Fund’s expense ratio of 0.92 per cent for the year ended 31 March, 2020. Until the transition is complete, Daniel D Kaplan, the lead analyst on the FPA Capital Fund investment team, will serve as the portfolio manager of FPA Capital Fund with oversight provided by FPA’s Management Committee.

“We are fortunate to partner with such a like-minded firm with a long history of investing success. Steve Scruggs and his team have added significant value for their shareholders for more than 18 years and we have every expectation that will continue. We thank Arik Ahitov for his past decade at FPA and wish him and his family the best as he begins his next chapter,” says FPA Managing Partner Steven Romick.

Scruggs says: “We are excited about our partnership with FPA and think it is a great match given the alignment of our two firms. We are long-term investors. Our company has been in business since 1964 and we have managed the Queens Road funds for over 18 years. During our tenure as managers of the Queens Road Funds we declined numerous offers from other firms who wished to partner with us. But when FPA suggested working together, we were immediately interested. We have followed FPA for several decades, and similarly embrace a long-term, value-oriented approach, capacity discipline, and shareholder focus.”