A: We follow a two-step process, first, looking for negative and positive events, and second, gathering extensive information about the industry and the companies involved. Background knowledge of good companies and businesses is an advantage because it helps to avoid “value” traps – statistically attractive companies that remain that way. There are both subjective and analytical dimensions to the research process. The former often involves talking with industry competitors and people with industry knowledge.

Our aim is to try and gain sufficient insight to be confident in our judgment that the market is likely wrong in its assessment, and is unable to fully anticipate or wait for the positive outcome from the events we have reviewed. Consequently, we do not believe in screening companies on historical financial measures for research candidates. However, financial statistics are an important aspect in assessing corporate structure and forming a view of the business.

Q:  How do you go about portfolio construction?

A: Ideally, we would like to have between 25 and 35 portfolio holdings – relatively concentrated. The procedure is to add value through our research, and it is usually, one company at a time.

We allocate more portfolio assets to ideas where we have greater confidence in the anticipated results. Generally, we target an allocation of 3% to 4% for each position. We often initiate a position with less than 2% and then add to the holding over time.

However, twice in the past ten years, we had positions grow to more than 10%. Trimming is in order if the position grows much beyond this. Furthermore, in our approach we do consider the global economic picture in the analysis.

Our reliance on events and attractive valuation leads to low turnover in the portfolio and hence the fund tends to be tax efficient too.

Q:  What is your buy and sell discipline?

A: Our investment strategy ensures that we buy positions in companies with good fundamentals, including a low price-toearnings ratio based on future profitability, short term undervaluation, and usually with good cash flow generation.

Selling is always tough. Sometimes we have to fight against the “halo effect.” This is a situation where we consider the sale of a company that had heretofore given great returns. When the price target decided upon during our initial analysis is attained this triggers a reexamination of the holding to decide whether there are still possibilities for additional attractive gains. If not, we would scale back or sell the position. If however, the updated analysis suggests that given our parameters there is still upside, we would retain the position and may even add to it depending on the size of the position in the portfolio.

Another sell situation, an undesirable one, is where we find out that in our initial analysis we missed something negative or we were wrong in our views and analysis. In some cases, a negative change may have occurred in the company’s fundamentals. In both cases we sell.

Q:  Do you focus on any specific market caps? What benchmark do you consider while building the portfolio?

A: Our benchmark is the Russell MidCap Index. Lipper categorizes the Fund as a multi-cap core fund. Our investment strategy leads to a style somewhere in the middle of growth and value. We invest in undervalued stocks of all sizes but primarily in mid-cap companies, which are defined as having a market value between $2 and $10 billion.

We started this fund nearly ten years ago because we came across ideas that were unsuitable for our small cap portfolios, but wanted to use them.

Q:  What are your views on the risk and how do you keep risk under control?

A: Again, our investment strategy relies on market events as catalysts to make investments. This limits downside risk by avoiding stocks with full valuations. We do look to diversify industry representation in the portfolio consistent with restrictions on concentration in the Funds’ prospectus.

Generally, we also try to avoid risky, commodity type businesses, because, despite our analysis, such an investment is still subject to the price swings of the underlying commodity. The one exception is the significant representation we have had in oil and gas exploration and production companies for some time. Oil prices are rising due to increased demand from emerging markets and not because of a supply disruption, as was the case with previous price increases since the 1970’s. They provide insurance in addition to current attractive fundamentals.