Q:  Can you give us an example of a stock that became a core holding through that research process?

A: One of our core holdings, a company called Scottish Power, is a generator, distributor and retailer of electricity in the U.K. It became of interest to us from the financial perspective a couple of years ago as it was a poorly managed business. It also owned quite a significant business in the States, which it sold to an utility Warren Buffet owns. At the time of the sale we felt that the market was underestimating the importance of the change going on, which was followed quite shortly by senior management changes.

It had an attractive valuation relative to its peers, very strong dividend yield, which provided some downside protection, and a stable business model. We also believed that the U.K. electricity sector would consolidate more on a pan-European basis. Indeed, Scottish Power was approached by a German utility. There was a catalyst for change, a strong valuation case, downside protection, and perhaps one of the best social responsibility programs in this sector in the U.K. That’s particularly important because Scottish Power has an extremely high environmental impact as a generator of power.

So the financial analysis led us to believe that there was value; the nonfinancial analysis showed that the company was managing its social, environmental and ethical impacts well. The stock compared well to other investment opportunities and so we added the stock to the portfolio and now it’s one of the top ten holdings within the Trust.

Q:  What kinds of risks do you monitor and how do you try to mitigate them?

A: Although we look at volatility and tracking errors as everyone else does, I believe that the most important risk control comes from appropriately pricing and understanding risks before you make an investment. Since we believe in focused investing and we don’t diversify for the sake of diversifying, our tracking error can be high. However, we don’t necessarily think that it reflects higher risk because we spend a lot of time pricing the risk before we make an investment.