Podcast Summary: The Long View – Episode Featuring Brian Selmo: ‘Winning by Not Losing’

Release Date: July 15, 2025
Hosts: Dan Lefkovitz, Christine Benz, Amy C. Arnott
Guest: Brian Selmo, Portfolio Manager and Research Director at First Pacific Advisors

1. Introduction

In this episode of The Long View, Morningstar's Dan Lefkovitz welcomes Brian Selmo, a seasoned Portfolio Manager and Research Director at First Pacific Advisors (FPA). Brian brings a wealth of experience, having co-managed the FPA Crescent Fund since 2013 and the FPA Global Equity ETF since 2021. His background includes roles at Third Avenue Management, Rothschild, and founding Eagle Lake Capital.

Notable Quote:

Dan Lefkovitz [00:06]: "Our guest this week is Brian Selmo... Both strategies are highly regarded by Morningstar's manager research team."

2. Navigating Market Volatility and Uncertainty

Brian addresses the prevalent themes of volatility and uncertainty in the markets. He emphasizes that uncertainty is an inherent aspect of investing and life, highlighting the importance of preparing for various eventualities rather than attempting to predict specific outcomes.

Notable Quotes:

Brian Selmo [01:14]: "Uncertainty is sort of a definition of risk from our perspective."

Brian Selmo [02:30]: "Instead of predicting any particular outcome... we want to prepare for any manner of eventualities."

3. Investment Strategy: Winning by Not Losing

The cornerstone of FPA's strategy is to achieve equity-like returns with reduced risk over various market cycles. Brian explains that this is accomplished by diversifying investments across different scenarios, allowing the fund to capitalize on market volatility without frequently altering the portfolio based on transient news.

Notable Quotes:

Brian Selmo [03:00]: "In Crescent, we are endeavoring for equity like returns with less risk... across rolling five-year periods."

Dan Lefkovitz [03:56]: "You have not entrusted us with your hard-earned capital to opine on public policy, but to do the best with the hand that we are dealt."

4. Focus on Small and Mid-Cap Valuations

FPA has strategically shifted focus towards small and mid-cap companies, believing that these segments offer more attractive valuations compared to large and mega-cap stocks. Brian attributes this to reduced competition from active mutual funds and hedge funds, creating unique opportunities in the mid-cap space.

Notable Quotes:

Brian Selmo [10:23]: "We have been very much net sellers of large and mega cap companies and buyers of mid cap companies."

Brian Selmo [11:50]: "The dominance of pod shops... creates an opportunity that we're well situated to take advantage of."

5. Global Investment Approach

While the U.S. market has historically outperformed, FPA adopts a global investment perspective, seeking quality businesses across geographies without being restricted by national boundaries. Brian discusses the impact of technological platforms like Silicon Valley-funded tech firms on U.S. market dominance and speculates on the future role of AI in shaping global business opportunities.

Notable Quotes:

Brian Selmo [12:50]: "We follow businesses by their industry or competitive set and invest openly across wherever the companies might be domiciled."

Brian Selmo [16:30]: "AI is very likely to be a new tech platform... new businesses might get built outside of the US."

6. AI and Its Impact on Investing

AI is identified as a transformative force in the investment landscape. FPA embraces AI by integrating it into their research and operations, using it to enhance investment decision-making and operational efficiency. However, they remain cautious, focusing on durable businesses that can withstand the shifts brought by AI advancements.

Notable Quotes:

Brian Selmo [17:34]: "We want to embrace [AI] as much as possible... use various AI tools as an organization."

Brian Selmo [19:15]: "We want to focus on those things that we think are going to be durable and not change in light of AI."

7. Regulatory Risks

Brian discusses the regulatory challenges facing major tech companies like Alphabet. While acknowledging the uncertainties, he believes that strong balance sheets and diversified business units will help these companies navigate regulatory pressures effectively.

Notable Quotes:

Brian Selmo [22:36]: "We suspect that it might not be the end of the world if they were to get, you know, rearranged a little bit organizationally."

Brian Selmo [23:15]: "Having a little bit of the wolf at the door might be helpful for them."

8. Notable Investments

Vail Resorts:
FPA capitalized on undervalued assets in Vail Resorts, driven by the company's robust snowmaking capabilities mitigating climate change concerns.

Notable Quotes:

Brian Selmo [24:03]: "We bought what we think of as a unique trophy asset in Vail Resorts at undemanding prices."

Brian Selmo [25:30]: "The number of skiing days has generally increased, and Vail has outperformed the industry in this regard."

Eurofins:
Invested in Eurofins, a European company specializing in testing for environmental, food, and pharmaceutical safety, anticipating long-term growth from increasing global health and environmental standards.

Notable Quotes:

Brian Selmo [27:14]: "Eurofins is built on long-term trends of greater interest in a clean environment and robust health innovation."

9. Private Markets Investing

FPA approaches private markets with caution, aligning investments with the liquidity profiles of their funds. While Crescent Fund maintains limited exposure due to its open-ended nature, the closed-end Source Fund actively invests in private credit and equity, benefiting from its locked-up structure.

Notable Quotes:

Brian Selmo [34:42]: "In Crescent, we have very little appetite for privates because it's a daily dealing fund."

Brian Selmo [35:10]: "Source has a large appetite for privates and is significantly invested in private credit and equity."

10. Integrative Research: Journalist on Staff

FPA employs an investigative journalist to enhance their investment research, focusing on in-depth background checks and personal profiles of company executives. This unique approach ensures a comprehensive understanding of management quality and corporate culture, which are pivotal for long-term investment success.

Notable Quotes:

Brian Selmo [42:28]: "Having someone like Scott... allows us to do background checks or personal profiles on executives."

Brian Selmo [44:53]: "It's hard to overstate how important the people are running a business."

11. Working with Partners

Brian highlights the significant influence of his partner, Steve Romick, who brings a focus on the bearish aspects of investments and prioritizes the client experience. Steve's approach ensures disciplined portfolio management and effective communication with investors, fostering trust and long-term relationships.

Notable Quotes:

Brian Selmo [48:06]: "Steve puts a focus on what the client's experience is... ensuring LPs have a good experience and get the returns of the fund."

Brian Selmo [50:15]: "Steve has always wanted... the importance of the LPs having actually a good experience."

12. Conclusion

Brian Selmo's insights provide a comprehensive look into FPA's disciplined, research-driven approach to investing amidst uncertainty. By focusing on high-quality small and mid-cap companies, embracing AI, and leveraging unique research capabilities, FPA aims to deliver consistent, risk-adjusted returns for their investors.

Notable Quote:

Brian Selmo [51:26]: "We structure from the beginning with a business proposition that is flexible to avoid difficult decisions and keep the portfolio disciplined."

By dissecting Brian Selmo's strategies and perspectives, listeners gain valuable lessons on navigating volatile markets, the importance of disciplined investing, and the advantages of integrating diverse research methodologies.