A: We run a concentrated portfolio of 55 stocks. The Fund is not constructed in relation to any index but we would use the index for risk-mitigation purposes. We are agnostic to market capitalization, index weight, and geography; the stock selection is based purely on the appeal of the stocks. Each of the three Fund managers specializes in sub-sectors and rates the stocks on a scale from one to five. Only the stocks with ratings one or two are considered candidates for purchase.

Of course, we combine the stock selection process with certain risk constraints. We tend to take position either at 1.5% or 3% weightings, depending on the conviction level. We would likely not have any position in the fund over 5%.

Q:  What would you do when a successful investment like Apple continues to grow to represent more than 5%? Overall, what is your sell discipline?

A: In cases such as Apple, we may take profits along the way and might trim the position to keep it below 5%. Another reason to sell a stock might be if it is rated “three” by the sub-sector specialist. The rating may change for a variety of reasons – price appreciation, change in the fundamental circumstances of that company, or change in the competitive environment.

Q:  What is your perception of risk? How do you manage risk at the portfolio and the stock level?

A: We use the index to monitor our geographic and sector risks. If we deviate significantly from the benchmark, we will take a reality check to ensure that we are content with the risks and the rewards of those positions. Additionally, we monitor our food chain exposure because of the considerable inter-linkage between the IT companies from different subsectors. We closely analyze those links to monitor our aggregate exposure to the particular end market.

Although we are agnostic to market capitalization, we monitor the liquidity of the stocks in which we invest. In some rare occasions, this may lead us to adjust the Fund’s position size accordingly. Another way to mitigate risk is that each of us dynamically rates the stocks. We also have a formal monthly stock selection meeting with an opportunity for detailed peer review between the three of us. In addition, we have a monthly meeting with the CIO of international equities which provides significant oversight to the risk of the portfolio.