A: Infosys, the Indian outsourcing company, has been a very good stock for us over the last few years. One of our long-term investment themes is looking for productivity enhancers around the world because competition is global, and therefore, the trade between highcost and low-cost countries and productiveness are critical for survival.

We found Infosys two or three years ago and it made total sense to us in terms of major productivity enhancement and the quality of the labor force. We're a little concerned about its ability to sustain the fast growth, but the education of the work force is very positive. Revenue is growing rapidly; return on capital is very high, so we think it's a great story with tremendous results so far. They are outsourcing to China now, so this is a well-run business with aggressive management team, a true global perspective, and free cash flow. The valuation of the stock is not what it was two years ago, but they have executed extremely well.

Nokia is a story with a different perspective. Despite difficulties, the company has achieved balance sheet strength and is a world leader in cell phones. Revenue was hurt, but we think that it is just a matter of time until they line up their product cycle with what the consumers want. In the meantime, we have very low downside risk in a global leader with a solid balance sheet. We also have exposure in Motorola, although not in this portfolio, so we play both sides of the global wireless demand. The changes occurring in the media and telecommunications are going to fuel these businesses and that seems to be already showing in the last six months.

Q: Both Nokia and Motorola are hardware driven and require substantial capital investments. At the same time, the heart of these wireless services are the standards owned by companies that don't require heavy expenditures, like Qualcomm.

A: Qualcomm is one of our most successful investments ever. We purchased the stock in 1997 and it made 15 times our money in 1999, becoming one of the largest positions before we sold out in 1999 and early 2000. But Qualcomm is more of an U.S. business, although you can argue that it's global. In that type of business, we expect much higher returns on capital, in the range of 40%, while Motorola and Nokia can produce cyclical highs of 20% and only 11% on a sustained basis.

Q: How do you approach portfolio construction? Do you follow a benchmark?

A: We are benchmark aware because the rest of the world forces us to be, but we don't focus on the benchmarks. We look at the MSCI Growth Index; we are aware of the positioning and the differences, but we don't construct the portfolio along these lines. What we look for is high return on capital and high relative growth businesses. That's all done quantitatively in our system.

We construct the portfolio top down and there are some productivity themes that we follow, such as healthcare cost containment, high-end global consumers, productivity enhancers, and supply-side driven business models. Then, of course, we have a macro perspective in terms of which countries may be turning a corner, like Japan last year, so we construct the portfolio between the country positioning and our thematic positioning. If there are some holes left, we just look for good bottom-up companies that strike us as good businesses.

Within a given year, we have about 300 holdings that we would own or monitor closely. We're going to probably own 75 to 80 and then turn them over quickly, depending on how volatile the market is.

Q: How do you manage to deal with the risks and to stay defensive?

A: There is an old cliché saying that you don't manage the returns, you manage the risk. We would manage the returns if we could, but it's just not possible, so we actually manage the different types of risks. There is a macro risk and we monitor interest rates, currencies, and the fiscal policy in the economic principles of free economy.

We're also looking at price risk relative to the expected return. More importantly, there is the risk of growth companies not being able to sustain their growth based on access to capital, competing products, or management's ability to handle changes in the business. Acquisitions typically are a big risk and as a rule, we'd stop and review the company.