Q: How did you come up with the idea of this fund?

A: Initially, we started off as multicap, value and growth fund and after a year into that process we decided to define ourselves as small cap value because we had institutional business the required a style box. For a while we couldn’t buy companies that had market caps greater than $2 billion and we couldn’t buy growth stocks either. Everything worked fine until the tech bubble in the late 1999 and 2000. The bubble sucked the oxygen out of small cap value because what worked in the bubble was large growth, or the opposite of our style box requirement. As a result, our institutional clients subsequently left us because instead of wanting managers to stick to their strategies they decided they wanted managers that were more flexible. For the last seven years we have remained multi-cap multi-strategy fund.

Q: What is the investment philosophy of the fund?

A: I believe that you can’t have just one strategy but you need to have multiple structured strategies to provide consistent performance. Investment psychology changes and markets reward different investment styles at different stages. We have multiple quantitative models that I have built up over the years. Sometimes you seek value and sometimes you want to be aggressive growth and it changes along with the market. That is why a single strategy is not always going to produce good results. The key is staying in synch with the current style of the market. Our whole money management focus is trying to find the sweet spot of the market – and it doesn’t matter whether it will be in growth, value, large cap, small cap, international or domestic stocks. Now we define ourselves as a globally diversified core equity fund that invests in companies of all sizes and market segments.

Q: How does this philosophy translate into an investment strategy?

A: Today, when information comes from numerous sources, we are trying to filter out the useful information on which we need to base good decisions and then translate data into actionable information. Our second key principle is to embrace appropriate levels of market risk. And the third principle is to use a continuous, disciplined, repeatable process.

To put that into practice, first we break the current market down into segments. The first thing we look at is whether the company is value, growth or blend and then we look at whether it is small, medium or large cap. Right now, probably the sweet spot in the market is mid and large cap growth so that would indicate the types of stocks that we are likely to favor.

Secondly, we take a hard look at the industries in the market and try to identify the industries which are producing the best results, the ones that are producing the highest earnings revisions and the ones selling at the lowest valuation ratios.

For example, today we wouldn’t want to be in home builders and all the businesses that service the home building market. Knowing that the Fed is trying to slow the economy would also indicate that the consumer discretionary sector is not an area that you want to emphasize either because the consumers will have to save more.

So we try to put all that information together along with a diverse set of models that we run on a daily basis. Some of them are growth models so they are looking at revisions in earnings, price momentum and earnings momentum and some of them are valuation models and they are looking at dividend, price to cash flow and other measures of value.

Q: How do you go about stock picking?

A: Essentially, we are doing a cluster analysis with the idea that stocks that have similar characteristics will produce similar results. Every day I rank all the stocks in terms of the expected return and their potential contribution to the portfolio. If we have high exposure to energy and we come up with another energy stock that has a high return, the model would probably not give that energy stock a high rating simply because it would add to the overall volatility of the portfolio.

Q: What kind of companies are you looking for?

A: It depends. A year ago we were much more focused on what I would call the dividend growers. Today we are more focused on what I’d call GARP (growth at reasonable price) stocks with steady earnings. We don’t have a lot of technology but if technology started to do better, you would see that in the PC cycle and then we would start buying more tech stocks.

We have a lot of industrial stocks. The financial stocks that we have are for the most part insurance companies and we have a lot of international companies trading as ADRs.

Q: How is your research process organized?

A: Generally, the daily financial data analysis takes 2½ hours to run all the models and what I end up with is about seven pages of report with stocks ranked by sector.

We always view the existing portfolio against all of the possibilities and we believe this is what differentiates us from most of our peers. A lot of managers look for a stock and say that they like it and then they have to figure out what to sell out of their existing portfolio. And if they really like all the stocks in the existing portfolio they may not buy the new stock. We try to weigh all the stocks in the portfolio against all the options every day and that has the advantage that our portfolio doesn’t get stale.

Q: How exactly do you weigh your existing portfolio against all options?

A: Essentially, we have a portfolio of stocks which has a certain projected return and certain volatility. We are trying to figure out if stocks under consideration will add to the return and reduce the risk of the portfolio. If the returns or risk reduction are high enough, then the stocks will get a high rating. We want stocks that add to the return and reduce volatility or, in other words, we are constantly doing is trying to get the highest sharp ratio possible.