Q: Could you discuss one of the companies that highlight your research process? How did you end up selecting it, how long did you hold it, when did you sell it and why?

A: About a year ago we purchased a technology company called CSR. It’s a UK-based semi-conductor designer that specializes in Bluetooth technology. These are the chips that allow electronic devices to communicate in a wireless fashion. For example, they allow a headset to communicate with the mobile phone. There has to be a chip in the phone and the headset. We see an increase in wireless chip applications - they are found in laptops as well as automobiles, to allow hands free use of your mobile phone. Applications are still in the early stage of development and demand is still coming from handsets and headsets for the most part, and computers. CSR has a competitive advantage in the chip design as they use less power and they’re more efficient. They’ve been winning over 50% of the designs in these devices and their market shares are actually higher than that in some cases. For example, in headsets, they have almost 90% of the market. This share will drift down over time, but still allow them to grow rapidly as the attach rate moves from the mid-20%, up into the mid-30% and beyond for these bluetooth applications.

It’s an attractive company, they have built a niche, they’re specialists, they have a competitive advantage in the research they’ve done and designs that they’ve developed for these chips. They’re competing with Broadcom and Texas Instruments, big companies that have a lot of resources, but they’ve been able to compete successfully with them. The company has done well for us and we continue to hold it because we believe that the investment story continues to be strong. We expect CSR to grow EPS in the 30% range this year and the stock is trading just over 20 times earnings, which is an attractive valuation.

Q: Most academic studies would lead you to believe that having more than 35 stocks just doesn’t add anything to the diversification. I guess your research is something different.

A: Risk adjusted returns are important to us. This fund is designed to meet the needs of individual and institutional investors. In other words, the information ratio, which is outperformance divided by volatility of outperformance, is important to us, Our research shows we can generate the risk-adjusted returns that our clients want and our potential investors find interesting. On a volatility- adjusted or risk-adjusted basis, the alpha is not diminished compared to the benefit you derive from the diversification and the reduced volatility.

Q: What kind of risks do you perceive? How do you monitor them and what do you do to mitigate them?

A: The approach we take is to focus on stock selection, picking the best stock in each particular sector and industry group. We limit our over/underweights versus the benchmark for country, currency, sector and industry group weights. We manage our sector weights to be + or -3% versus the index. We also follow that rule for weightings in countries, industry groups and currencies. We actually have a slightly wider band on market capitalization quintiles. We divide the market capitalization of the benchmark into five groups of equal size and seek to have broad representation across all groups within a 5% band. We limit individual stock holdings to + or -1% versus the benchmark. In this respect, we are true to our title of the diversified international fund since we seek to diversify away nonstock specific risks, and focus our efforts on stock selection.

Q: What is the rationale of not using MSCI EAFE index which is generally what most international funds use?

A: We do actually look at the MSCI index in addition to the Citigroup index I mentioned earlier, but we include Canada, so we look at the MSCI World ex-U.S. Index which includes Canada. We monitor the portfolio versus the index on a daily and weekly basis. For our initial screening process we use the Citigroup Index, which gives us a much broader starting point than the EAFE index because the EAFE index focuses on only the largest capitalization stocks but excludes many sizable companies in the international landscape that we believe could be attractive investment opportunities.