Credentials: BS in Education, Northwestern University

Experience: Portfolio manager, FPA Crescent (1993-present); research analyst, FPA Capital (1996-present); chairman, Crescent Management (1990-1996); consulting security analyst, Kaplan, Nathan & Co. (1985-1990)

Ticker: FPACX

Inception of fund: June 1993

Style: Moderate Allocation

Assets under management: $1.8 billion

Three- and five-year performance as of Aug. 13, 2009: 2.5%; 6.4%

Expense ratio: 1.23%

Front load: None

Minimum investment: $1,500

Alpha: 0.70% vs. Morningstar Moderate Target Risk

Most managers would be elated to have only lost 20.6% in 2008's treacherous market when the average domestic mutual fund tracked by Morningstar declined 37.6% and the S&P 500 dropped 38.5%. Not Steve Romick, manager of FPA Crescent. "We really sucked last year," he says.

Negative return is not something Romick is used to. In fact, over the 16 years that he's managed the Los Angeles-based Crescent, 2008 was only the second time it happened (the first was in 1999). Even during the market rout of 2000 to 2002, Crescent sailed into positive territory on the strength of its small-cap fare and value holdings. But this bear market has been entirely different. "I couldn't have not lost money last year unless I was 100% in cash," Romick says.

Romick is so obsessed with protecting capital that he sometimes makes moves others find extreme. In mid-2005, for example, 49.5% of the portfolio was in cash, reflecting his view that a credit bubble was on the verge of popping and investors weren't adequately compensated for the risk they were undertaking by owning stocks and bonds. That number slowly fell until 2008, when Romick deployed a chunk of his liquid holdings. Cash is only 25% of assets now.

Other times, he'll short stocks when he thinks there's more advantage in being on the other side of a downward spiral. And when he does venture into equities, Romick looks for companies so significantly out of favor that their shares trade at fire-sale prices, further limiting the downside.

BEAR MARKET FRIEND

The aversion to losses has served FPA Crescent particularly well in the latest market turmoil. With smatterings of bonds, bank loans, distressed debt, short positions and cash, the fund has a low correlation to the market and has been able to deliver impressive returns, even if they were negative.

For the past 10 years, FPA Crescent is up an annualized 8.5%, putting the fund in Morningstar's top 1% of the moderate allocation category through July 31. Over the past 12 months through August 12, it's down 6.8%, besting 87% of similar offerings. And in the last three years, the fund is up 2.3%, in the category's top 4%.

If that's not enough, Romick has set his sights on an even more difficult task: "My goal is to have the highest risk-adjusted returns of any fund, but with less volatility when I hit the 25-year mark."

Much of the fund's recent good showing can be attributed to Romick's flexible mandate, which allows him to go where the opportunities lie and build up cash when there are none.

Coming into the downturn, Romick was light on stocks and didn't own any big banks, a sector he has never liked. In fact, Romick has been wary about the health of the economy for most of this decade, a view he shares with his First Pacific Advisors colleague Robert Rodriguez. Banks, they thought, exemplified the worst of the excess.

"With a bank, you're talking about a business where the investor doesn't have any ability to know what assets are in the portfolio," he says. "Imagine owning a mutual fund where the manager doesn't tell you what his or her holdings are, but just wants you to trust his or her ability to manage the portfolio."

Even as the banks suffered massive declines in 2008, Romick hasn't been tempted to buy them, believing that there are still a lot of problems on their books.

A FANCY FOR BONDS

But other financials are appealing to Romick. Crescent's sizable cash hoard gave him the ability to tiptoe back into the market in the fourth quarter when prices cratered. In particular, he liked high-yield and distressed bonds.

Fixed income now makes up about 30% of the fund's assets. One of the biggest holdings is CIT Group, a lender that has found itself strapped for cash and has been acrobatically maneuvering to raise funds in the frozen credit market. There's still some concern that the firm will be unable to repay the $2.7 billion in debt that it will owe by year-end. Its small- and midsize business customers have been drawing down on their lines of credit for fear that it will go under.