Our role is to look at a return series and decipher whether this is luck or skill. By looking at mean reversion, you can select skill with bad luck, which pays you off double. When the style comes into favor, the manager comes into favor and it’s almost like the P/E expansion. When you buy a low P/E stock, not only the earnings come up, but the P/E expands, so you win twice. When we picked the small-cap manager in early 2003, we didn’t only get a great manager, but also the style that was coming in vogue.

Q: Does that mean that a manager with strong performance wouldn’t stand a chance in your model? What about managers who have consistently done well for ten years or longer? Would they be excluded by your manager- selection process?

A: No. If a manager is good, he’ll tend to be good. There are factors that can signal if the best days are behind that manager or if he or she has a wonderful philosophy and process that will continue to produce strong results. We’re not turning over advisors and we’re not timing advisors; we tend to be long-term holders of both the sub-advisors and the strategies. This is a fund that moves like a tortoise and we’re trying to get the major turning points right and let the trend play itself out. So we’re just trying to find the sub-styles and the strategies that give us signals of upcoming strength, and get there before the crowd.

For example, in 2002 nobody would want to invest in international smallcaps except for us. That gives us contrarian flair, but we have a methodology that allows us to see these trends. We’re not contrarian for contrarian sake; it’s the methodology that points in that direction. That does not go against a great manager still being great, and we still kept William Blair. We just allocated new cash flow to American Century.

Q: When you have multiple managers, what kind of risks do you perceive and how do you monitor and control them?

A: The risks are typical of any mutual fund. They include over-concentration in the same region, sector, industry, or style, and we’ve mitigated this risk almost by design. The fund plays in five separate areas and represents five funds in one. Many risks can never go away, but we believe that we mitigate a lot of them through diversification. The growth tilt is mitigated by the value portion, largecap by small-caps; emerging markets by developed markets, so most risks are controlled through diversification.

But while the structure does most of the heavy lifting for us, there’s the risk of that structure breaking down if a growth manager wanders over into value, or if large-cap wanders into small. So we are constantly evaluating manager’s holdings formally on quarterly basis and informally on individual basis. We do style maps of each sub-advisor to make sure that they are adhering to their style. We are looking at our squares relative to the benchmarks, at the upside and downside capture of each sub-advisor and the overall fund as we want it to behave in the right way in various market conditions.

Q: What benchmarks do you follow?

A: The fairest benchmark for this fund would be the MSCI EAFE, which is the broadest benchmark in that space. The fund is a core international holding, although it’s temporarily in the growth base of the agencies. For many of our investors, this fund is their only international holding because it represents five funds into one. Others use this as a core holding and they combine it with other mutual funds to supplement the return, but those are the two manners in which this fund is utilized by investors.