Q:  How diversified are you across the different industries and sectors?

A: When it comes to sector diversification, we tend to take a bit of a contrarian approach to look at those areas where stocks underperformed over the last several years.

For example, we are overweight in the technology sector which has been a dreadful performer over the last five years; we are overweight in the healthcare sector – again one of the worst performers over the last five years.

Mining and energy sectors have done well over that same time span and we are underweight in those sectors as we tend to avoid commodity-oriented businesses. We view the usually large weights these sectors have in the Russell Mid Cap Growth Index as a contrary indicator and generally we use this as a signal to underweight stocks in that sector.

Q:  Could you use some examples to illustrate your buy and sell process?

A: We are overweight is in the semiconductor space. We have owned companies like Linear Technology, Xilinx, Inc, Altera Corp, and Broadcom. For a long period of time these companies have gone through the worst of an inventory cycle but they all remain very solid businesses with attractive gross margins and cash flow characteristics. We are very encouraged with respect to what Linear has done regarding addressing an overcapitalized company and significantly reducing shares outstanding, and it’s paid a steady dividend through time. The fact that you can get a 2% yield and buy these fabulous businesses at reasonable multiple trading the near trough of an inventory correction is a wonderful opportunity.

Charles Schwab & Co. and Adobe Systems are two stocks which we have recently eliminated. We purchased them when they were once valued as large cap companies and had fallen into the mid-cap growth zone for various short-term reasons. These companies had just fallen out of favor but we thought they were both offered tremendous franchises that were out of favor. We eliminated them primarily for one reason that their market capitalization had exceeded $25 billion.

Q:  What kinds of risk do you monitor and what do you do to mitigate them?

A: We use a lot of quantitative factors to first understand the risk that we have in a portfolio. We structure the portfolio to have less volatility than the benchmark and having marketleading companies with solid management teams and good cash flow goes a long way in doing that at the micro-level. That’s not to say in bear markets portfolio will not fall in value or lose money. But in the downturn we tend to lose a lot less relative to others and our benchmark.

Consistency is the key to long-term success. We take a lower volatility and lower risk approach. What we really try to do is provide good risk control for patient investors. There is risk in every investment. But our analysis significantly reduces the risk while providing consistent gains over time.

We’ve tried to be consistently better than average fund through time, but not take a huge amount of risk to accomplish that.