e-fundresearch.com: Is your selection process purely bottom-up, or do you look at the broader market picture as well?
Richard Weiss: The stock selection process is purely bottom-up. At the core of our philosophy is the private market value (PMV), in which we value companies on a go-private basis. Most companies on the public market tend to trade at 50% to 80% of their PMVs, where we buy at the low end of the range and sell at the high end of the range. We use the PMV to help mitigate the impact of emotion when buying or selling a security in the portfolio. Furthermore, there tends to be two or three key issues that drive long-term stock performance. Along with our PMV work, we attempt to identify these underlying key issues and decide whether we are positive or negative on the potential outcome. After a company's PMV and key issues have been identified, along with fundamental analysis of the key issues, we then decide to buy/sell or trim/add a position.
e-fundresearch.com: If so, what's your outlook for US equities in that perspective, taking, for example, the US dollar appreciation and the fall of the oil price in consideration?
Richard Weiss: We are bottom-up focusers so we tend not to make stock calls based on macro factors such as the dollar appreciation or move in oil prices. However, we do pay attention to the impact from events such as these on underlying names in the portfolio.
e-fundresearch.com: Are US equities expensive in your opinion (versus earnings growth, profit margins, relative to bond or foreign equities)?
Richard Weiss: For the most part, US equities appear fairly valued, but we do see some upside relative to our 2015/2016 PMVs. More of the onus for stock appreciation from current levels will have to come from earnings appreciation as broad index multiples are close to parity with prior market peaks.
e-fundresearch.com: Where do you find the most opportunities now (small caps?) and where the least (tech and shale sector, perhaps)?
Richard Weiss: At current, we see opportunity across all cap levels, but no one sector looks cheap on the whole. Consumer discretionary names are benefitting from lower petrol prices, which is putting more money back in the consumer's wallet. Further, the job market appears to be tightening and wages are slowly on the rise, which should bode well for consumer spending.
With the move down in oil, most exploration and production names appear to be discounting the long-term oil strip in the US$75 range so relative valuations do not appear overly attractive at current.
e-fundresearch.com: Tell me, please, about your selection process, how you invented it, how you changed it over time and the results it is getting you?
Richard Weiss: Similar to the first question, we use the PMV as the bedrock of our selection process. Dick Weiss was a former media analyst in which he used PMVs frequently to value companies in the space. He then started to apply this methodology to other sectors and further refined the process over time. The process has not changed dramatically. The PMV process helps mitigate the impact of emotion in the investment process and the process has been used to manage top-performing portfolios through various market cycles.
e-fundresearch.com: Do you always choose the company with the biggest discount, or would you rather invest in a company with a smaller discount but where you see a lot of mergers and acquisitions?
Richard Weiss: We do not make an investment decision with the belief that a company will be bought out, rather we use our PMVs as a guide to what we think the company is worth. We typically look for a company that is trading at 50% to 55% of its PMV to invest in. There may be times we pay above that range depending on sector fundamentals, but that is typically the discount range we look for.
e-fundresearch.com: Can you name one of two recent changes in your portfolio?
Richard Weiss: Most recently, we have been trimming our exposure in the energy sector on days of outperformance and adding on days of underperformance given the volatility of commodity/oil prices.
e-fundresearch.com: In what kind of portfolio would this fund fit well?
Richard Weiss: The strategy is not marked into any particular style box, per se. Historically, the portfolio has shown downside capture of less than 100% and upside capture greater than 100% relative to both the Russell 2000® Index and the S&P 500 Index. As such, the process has performed well in both growth-driven markets and value-driven markets.
e-fundresearch.com: Why are you launching a US equity fund over here now?
Richard Weiss: We would like for both international and domestic investors to be able to invest in the process.
e-fundresearch.com: Thank You!