Sticking with cash cost FPA Capital Fund a $300 million client, portfolio manager Bob Rodriquez told advisors at Morningstar's Investment Conference last week. Still, Rodriguez encouraged other fund managers to rethink their portfolios and boost performance. His remarks were summarized by Sam Mamudi in the Wall Street Journal.

The entire speech is carried on the fund firm's Website.

Rodriguez, CEO of Los Angeles-based First Pacific Advisors, was not afraid to call out his peers. First Pacific Advisors is a 39-person firm that sponsors six registered mutual funds. It managed $9.87 billion in client assets at the end of April.

"Let's be frank about last year's performance," Rodriguez reportedly said. "In a word, we stunk. We managers did not deliver the goods and we must explain why."

He also criticized mutual fund portfolio managers for staying fully invested and sticking near their benchmark's allocations.

"If active managers maintain this course, I fear the long-term outlook for their funds, as well as their employment, will be at high risk," Rodriguez contended.

Yet, diverging from a benchmark can also cost a fund institutional business, as Rodriguez himself discovered. After going to cash in 2007, he admitted that the firm lost clients, including one $300 million client that took issue with the fund throwing off its asset allocation model.

"We have been penalized for taking precautionary measures leading up to and during a period of extraordinary risk," he said.

Still, he is not letting that experience stop him from making bets through weighting his fund. Today, the fund is overweight in energy stocks.

"A more focused strategy will be necessary to excel," said Rodriguez. "If active managers continue to adhere to their old practices, we should see a contraction in the active mutual-fund management universe in the next five to 10 years." 

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