Q:  What is the history of the firm? A : Founded in 1987 by William A. Priebe and Amy S. Croen, Geneva Capital Management Ltd. is an employee-owned independent investment firm focused on small and midcap growth companies. We have $1.5 billion of assets under management in two flagship products, the Geneva Midcap Growth and the Geneva Smallcap Growth. We have seven people on the investment team. Five members are principals and portfolio managers with analyst responsibilities supported by two additional analysts. Q:  What are the tenets of your investment philosophy? A : We look for high-quality growth companies that are leaders in their industry, with very experienced and successful management teams, that have a sustainable competitive advantage and high growth qualitative metrics. We believe that by investing in these high-quality growth companies, that have had very consistent and above average earnings growth in the past and which can be sustained in the future, we can build wealth for our clients with less volatility over time by taking less risk. We look for small or midcap companies that are in the accelerating phase of their life cycle, growing their revenue and earnings at a higher level than the market and their peers. As part of this process, we spend a lot of time performing due diligence upfront, assessing the quality metrics, to find these great companies that we can hold for three to five years. We view ourselves as investors and not traders. Q:  How do you transform your philosophy into an investment strategy? A : Our team employs a balanced approach in finding great companies that fit within our long term outlook for the economy in the market. We do comprehensive and bottom-up fundamental analysis on companies which is supported by our top-down economic outlook that we publish on a quarterly basis. As we are somewhat sector-agnostic, we simply seek to find great companies with a competitive advantage that is sustainable and will allow them to grow rapidly over time. The top-down component helps us tremendously in understanding the environment that we are in and how different companies might perform. Q:  What is your investment process? A : The process starts with a quantitative screen. We use the third party databases that are rich in both technical and fundamental information that cover 60,000 global stocks. We screen about 7,000 domestic names from this list with the market cap limits as specified in the Russell Mid Cap Growth Index and Russell 2000 Growth Index for the midcap and smallcap stocks respectively. To meet our investment goal, we scour those universes for above average revenue growth and earnings growth on both the historical trailing three-year basis as well a projected three-year basis. We look for return on equity of above 15% and debt-to-capitalization below 50% and consistent growth in earnings and revenues. We screen on those quantitative characteristics and then we perform our fundamental due diligence, which involves reading publicly available information, so that we understand the business and the industry that the company is operating in. We spend a great deal of time with management. The face-to-face meetings allow us to understand their long-term vision for growth and the strategies to sustain growth rates. We also evaluate the management team for their level of sophistication and their passion and commitment to the company and the growth over time. Additionally, we spend a lot of time building our thesis around identifying the sustainable competitive advantage and the long term growth potential for the company. As for the evaluation of the attractiveness of a particular company, we consider the current valuation levels. We look at the historical valuation range over the past five or more years and the company’s valuation multiples relative to peers and the market. Our proprietary valuation model gives us the sense of how the company fits in relative to all the other stocks in the portfolio. In conclusion, we do a technical review. We have the top down component, we have a quantitative screening process, we spend the majority of the time in doing the fundamental due diligence, and then we use valuation and technical analysis to help us with entry points in the name so that we can eliminate any short term risk. As soon as we walk through that process, it is ready to be presented to the team. Since we manage the portfolio as a team, each analyst makes the case for the company that they have researched, and the team decides to either put it into the portfolio or wait for a more attractive entry point. The high-quality focus leads to much lower volatility in our overall performance. Because of the high-quality nature of the names in the portfolio, they will tend to have either higher cash balances and/or lower debt which will give them much more financial flexibility when times get tough. Also, such companies can keep on investing in research and development, growing their sales team, making acquisitions, when their competitors are in a weaker position or fighting just to stay afloat. That is why financial flexibility is one of the key components that we look for in our companies. Q:  What is the benchmark for the fund? A : It is the Russell Mid Cap Growth for the midcap portfolio and the Russell 2000 Growth for the smallcap portfolio. Q:  Are there any guidelines to sector and name weightings? A : We start a new position with a 1% to 1.5% weighting in the portfolio. We let our position sizes grow up to about a 3% to 3.5% and at that point they become candidates to start being trimmed back. Although we always start trimming our winners, we try to hold core positions in those stocks. It is worth noting that we will never have more than a 2% position in a name at the time of purchase. If a stock gets up to 3%, that is simply because it has grown and it is growing more rapidly than the rest of the portfolio. In terms of sector allocation, we generally limit our industry weightings to 15%. Q:  How many names do you hold in the portfolio and what is the holding duration? A : We typically have 50 or 60 names that we hold between three to five years depending on whether you are looking at the small or midcap portfolio. In fact, some of the names in the portfolio have been there for more than 10 years. Q:  What is the portfolio turnover in the mid cap fund? A : It is running around 20% right now for the trailing 12-month period. Q:  Would you discuss some of the stocks that you picked and sold historically to explain this process? A : Since 2003 we have owned Stericycle Inc, a leader in the heavily regulated industry of medical waste removal and disposal. We bought the stock under $23 a share and the stock is near $65 (as of 8/26/10). We have trimmed it and then added back to it several times over the past seven years or so. Stericycle is the clear leader in this space and they are 17 times the size of their next largest competitor. The second characteristic that we took into account is an experienced management team with a successful record. The CEO of this company has been with the company since 1992 and has obviously grown the company substantially over that time period. Additionally, the CFO has been with the company for a very long period, since 1997. The third characteristic on the qualitative side we looked at is the sustainable competitive advantage. Being in a very heavily regulated industry, Stericycle certainly enjoys a distinct competitive advantage. Another factor that gives Stericycle a competitive advantage is that they have a national footprint of disposal sites. As one can imagine, getting a new medical waste disposal site authorized would be a very daunting and challenging process. So, the fact that they already had this national footprint, gave them a competitive advantage and it also allowed them to really increase their customer density because they could grow around those sites. The growth thesis for the company was that they have grown by increasing the penetration across the country along with increasing their route density, and they have grown by increasing the number of products and services that they sell into their existing customer base. Also, they have grown geographically by expanding and adding additional territories, and they have also grown by acquisition. They are also expanding now internationally, which is one of the trends we are witnessing in mid-cap companies. Over the last five to seven years, mid caps have done much better than many other asset classes and part of that is because they have benefited from globalization. Q:  How do you perceive risk and how do you control it? A : Looking at the portfolio as a whole, you will see that we have very low relative standard deviation. A couple of ways for us to mitigate risk is by focusing on high-quality companies that have consistent above average growth. We look for those companies that can drive at least 15% EPS growth over the next three to five years. Furthermore, we are big believers in diversification. As mentioned earlier, we generally do not invest more than 15% in any one industry. We never buy IPOs and we do not buy highly leveraged companies because we like financial flexibility. As it is critical to our process that we meet with management, we only buy companies that are domiciled here in the US. Naturally, such meetings are much easier to take place when they are domiciled here in the US. Finally, we do not buy concept issues. Our companies have to have earnings and earnings growth. That is why we did not participate in a lot of the Internet stocks in the late 90s and we do not invest in turnaround companies. We try to stick to our principles, which help us mitigate risks to a great extent.