Then we may move to France and look at the opportunities in the European marketplace. We would identify the opportunities based on our quantitative results, but we’ll be looking at a different set of quantitative results. Most importantly, everything we do on an individual security basis is reinforced with our indexing strategy. That means that we match each individual security with an index strategy that correlates.

Q:  What is the primary benchmark index that you use?

A : Our primary benchmark is the Dow Jones World. That is not the most common index in today’s marketplace, mainly because it is extremely diversified, and that makes it a difficult benchmark to correlate to for any of us.

However, I would like to emphasize that the Capital Income Fund is not simply an index fund that tracks the Dow Jones World Index. We create a lot of value for our shareholders through a portfolio that correlates to what we consider the best index. We have found that it is a very challenging benchmark, but we mark very close to it through each annual cycle and don’t mind the challenge.

Q:  MSCI and S&P also provide global indexes. What is so unique about the Dow Jones World Index? Why have you selected it?

A : The Dow Jones World carries through the large, medium, and small-cap global and domestic theme that we have. I believe that it best corresponds to the way our fund is structured with thousands and thousands of individual securities. The other indexes are equally good, but we believe that the country-by-country exposure and performance is the best way to show the modern portfolio theory.

Q:  How many stocks do you hold on average and how do you approach the portfolio construction process?

A : We typically have 30 to 50 positions that may represent thousands of underlying securities, and the portfolio is divided between domestic and international securities. Since half of our holdings are ETFs, we run an extremely diversified fund with more securities than any other fund in our peer group. We don’t view an ETF as just one security, but as a vehicle for adding more value through further diversification. With our goal being global diversification, I could say that our portfolios will always have room for one more good security.

I believe that we are probably the only fund with that strategy in place. It took a lot of work back in the early 90’s to make this happen and, in the meantime, we have learned a lot about how to structure the portfolios to gain long-term advantage. Regardless of their style, all our funds employ the same strategy of global diversification and being up-to-date with trends in the economy. We were pioneers in combining active and passive investing and utilizing multiple indexes across the 30 mature markets.

Q:  What are the most important elements of your buying and selling discipline?

A : The buying and selling discipline is based on the fundamentals. For us, the deteriorating fundamentals in some cases can represent a buying opportunity, and in other cases, can provide a straightforward reason to sell. A company may be undervalued because it is only going through a cycle, which would trigger our buying interest, or because it is lagging relative to its peers, which would trigger a sell decision.

For the Capital Income Fund, the elimination of the dividend will automatically result in a decision to sell. Negative returns relative to the marketplace will also provoke serious consideration. If we see deterioration that we cannot explain, we will certainly adjust the portfolio. On our buy side, we look for strong currency and economic growth scenarios, and we try to spread as far as we can around the globe.

Q:  What are the main risks that you perceive and how do you mitigate them?

A : Our risk control has three main components – diversification, cost, and tax effectiveness (we tax manage all five funds). We aim to mitigate the risk of each individual security as much as possible, and that’s a key part of our investment philosophy.

Every year we include more assets in the funds and I believe that the diversification improves our performance and reduces the risk for the investors. We’ll continue to look for new opportunities beyond the ETFs, but right now we cover thousands of ADRs that are attractive as individual securities.

A unique feature of this fund is that we are inclusive of a much greater number of securities, indexing, ADR, and fixed-income strategies than most of the managers in our industry. We combine them as portfolios, and all those portfolios are available to individual and institutional investors alike.

Finally, I would like to point out the long-term experience, knowledge gathering, and continuity in money management. My family has been in this business even before the Great Depression and I represent the fourth generation of money management. The point is that we are deeply rooted well connected, and have passed strategies, experience, and knowledge through the generations. That long-term experience has led us to the current portfolio management and structure. I believe that this is an important differentiator of the company, and the experience helps to better control the risks.