The company met our screening criteria and our qualitative characteristics. The analysts put a report together, and then we met as a group to discuss the risks associated with a slowdown in communication spending. It was a fairly unique area within the portfolio as we do not have another company in the same area of the marketplace, so it was a good complimentary addition.

Q:  Could you give us an example of ideas that you found in some other way?

A: I think that East West Bancorp fits that universe. What we liked about that company was its market positioning. It is the largest Chinese American bank with most of its branches based in California, so it is a unique niche player. That’s the other way of generating ideas; looking not only for market share leaders but also for companies that can own the market.

They have been generating above-average growth in both deposits and assets partially because the Chinese-American community likes to deal with other Chinese Americans and also because of their exposure abroad. Many people have families both in China and California and the bank allows direct transfers and deposits, so it has a very strong niche.

We also liked the stock because we were looking for the theme of banks with low exposure to residential mortgage operations. East West Bancorp is primarily a commercial bank with exposure on the loan side of commercial loans. We wanted to avoid the banks that are heavily residential as they are potentially going to run into more credit problems that would flatten the yield curve. So we decided that they were in a good niche and had above-average growth in assets. We expected the company to continue to grow faster than other banks, so we believed the share price would continue to go up.

Q:  How do you approach the risk control aspect of running a fund?

A: We control risks by looking at the overall volatility of the portfolio. We know what’s in the Russell Mid Cap index, but it is not a driver of our process. So we look at how much risk or how much volatility we have within the overall portfolio and we try to keep that to a minimum. We want companies that are growing but we are not momentum investors. We look for solid fundamentals and good companies growing faster than their peer groups and we reduce the volatility by paying a cheap price for those companies. If we are paying the right multiple per unit of growth, that helps to control our downside risk.