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Letters & Theses

Source Capital Portfolio Managers · FPA

Source Capital's 2024 letter to shareholders, on complacency and expensive stocks

Covers FY2024Published 10 Feb 2025Filed 7 Mar 2025Available at SEC.gov, link checked 8 Nov 2026Investor letter · Investment

The view as filed on 7 Mar 2025, not a statement of what the author thinks today.

What to notice

  1. 1

    The MSCI ACWI rose 38.98% in the two years to the end of 2024, five times its 7.7% cumulative earnings growth, and the fund's equity exposure fell 8.5 percentage points over the same period.

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“we are not interested in buying debt priced to perfection”
Source Capital Portfolio Managers, 10 Feb 2025

Why read it

A balanced fund arguing that complacency had left both stocks and high-yield credit priced for good outcomes, and explaining why its managers lean into weakness and back away from strength.

About this letter

The portfolio managers of Source Capital, a closed-end fund listed in New York and managed by FPA, signed this letter on 10 February 2025. It opens the fund's annual report for 2024, filed with the SEC on form N-CSR on 7 March 2025.

The fund's net asset value rose 0.19% in the fourth quarter and 11.11% over twelve months. Much of the letter is about complacency. The managers chart the largest share of investors since the Great Financial Crisis putting the chance of a crash below 10%, stocks valued at more than ten times sales, the lead of momentum stocks and how few companies beat the S&P 500, and they explain why the fund's equity exposure fell as prices rose. They review four holdings, Heineken, Glencore, Comcast and LG Corp, then explain why high-yield spreads near historic lows give them pause. The letter closes with the monthly distribution, the discount to net asset value and a note on the Los Angeles fires.

Companies

  • Source Capital SOR
  • Heineken
  • Glencore
  • Comcast
  • LG Corp

Themes

  • valuation
  • risk
  • market concentration
  • market cycles
  • credit cycles

L3VLUP does not host this document. It belongs to FPA and is a public SEC filing; the notes above are L3VLUP’s reading of it.