Q:  Would you describe the investment philosophy of your fund? A: It is a bottom-up, stock-picking driven, fundamental fund. When we came to the US market, we wanted to set up a fund that differs from most international funds by utilizing the onthe- ground skills we had in Europe, Japan, and Asia. We have a large company and long standing business in these particular markets, although we're not well known in the United States. We have five portfolio managers responsible for different pools of assets in the fund. Four of the pools are based on geographic allocation and the fifth one is technology. The five managers all have slightly different approaches and processes. Otherwise, they can buy big, medium, and small-cap stocks, and can have all their companies in whatever size they want. Their only restrictions would be for liquidity reasons. Four of them can buy no more than 10 stocks, and the fifth portfolio manager can buy 15 stocks. The portfolio in total has a maximum of 55 stocks. My role is to select the particular portfolio managers, to set up the fund and the strategies, so that the managers can deliver and give their best ideas, and to allocate the pools of assets. Q:  How your investment approach differs across those five areas that you cover? A: In Europe, we have two managers with contrasting styles. Stephen Peak, who also manages the European Focus Fund, is a longstanding European investment manager and he's been at Henderson for a long time. His style can be described as growth at a reasonable price. The other European portfolio manager, Tim Stevenson, is a growth manager looking for growth in a more classic sense. In Japan, our style is definitely a value style. Michael Wood Martin is based in London and is strongly supported by Andrew Millward, who is based in our Tokyo office. In Asia, ex Japan, we have an office in Singapore. The manager of the assets there, Andrew Mattock, is based in Singapore and his style is more on the growth side. We can go into any of the markets in the region, including the more mature ones such as Australia and Hong Kong, but also down to smaller countries, like Thailand or Singapore and into emerging markets like China and India. We have no restrictions on the countries, but over the four and a half years that we’ve been running the funds we’ve generally had a spread of three, four, or five countries within a region. We’ve not yet had all our stocks in one market. In the Asian region, there is a slight element of country allocation. The fifth pool is global technology, where Henderson has had a long expertise. We first launched a fund in the UK nearly 20 years ago and we’re the largest asset managers in technology outside of the U.S. But if you’re going to have technology, then you do need to be invested in the US market because that's where a lot of the action is. Technology has tended to be small relative to the other pools, because it is not as big part of the international space as it is in the U.S. But it is a space where having a shortlist of stocks can significantly add alpha. Usually, in technology you're looking for growth, but we look for slightly more value strength. I'll occasionally move money between the five teams, but we don't make such changes often. The main driver is stock selection and we're spreading our risk amongst the five portfolio managers. At any time you hope to have two, three, or four of them going well, and one’s usually a little off pace. That provides us with diversification and also keeps the performance numbers. Q:  What is the ultimate goal of the fund? How important is the benchmark to you? A: Regardless of how good our stock picking may be, we’re not absolute return managers. We'll be affected by overall market trends and our purpose is to outperform the competition. Unless we outperform the index by a meaningful degree, we might as well not be in business. The index we look at is the MSCI EAFE index. The ultimate goal is to clearly outperform the index and the competition, the primary one being the competition. The portfolio managers principally are rewarded for outperformance of the indices and the benchmarks given the risks that we’re taking. We tend to be fairly fully invested. Right now we are definitely overweight Asia versus Europe, but we’re close to where we want to be. If I went much more than where we're now, then swings between those two markets, between the currencies, which are not predictable in the short term, would drive the performance of the portfolio instead of the stocks we pick. Q:  Are your holdings reflecting the MSCI in geographic allocation? A: They can be very different. Right now we have a few more names that you might recognize than two or three years ago and there’s a reason for that. We started this fund in August 2001, when we had a strong belief that smaller companies were significantly undervalued. As a result, particularly in Europe and Japan, we had significant weightings in small to mid-cap stocks. Our portfolio then was very different from the index both in terms of returns and correlations. More recently, we have been adding bigger stocks, not the mega caps, but mid to large-cap stocks. Smaller companies have had a very strong run for four or five years and we now feel that those companies are fairly valued relative to the large ones. There isn’t the extra value or growth within the small caps from a couple of years ago. So today we’re more in the mid-cap area, and our weighted average market cap is about $27 billion, while the average for the index is about $50 billion. We’re still far below the market average, but $27 billion isn't a small company. Over the cycle, this changes and our style doesn't include moves in any dramatic fashion, but steady and incremental changes. Q:  Can you give us a few examples that illustrate your investment process? A: We do a lot of company visits, because we think that’s an important part of the process. We don't visit every single company, but probably 80% or 90% of them. In Japan we bought Tokyo Broadcasting Systems in the middle of January 2003 because we saw a very big value play. They have large real estate holdings close to their main broadcasting units. Real estate in Japan has been on a downtrend for 15 years, so it is very difficult to predict the timing. The stock was trading at a significant discount to asset value and looked much undervalued. But their basic business was doing perfectly well. We sold this stock on very high volume when it looked over-speculative, at almost double the price we paid for it. Another company has built up a significant stake, partially signaling that it was interested both in the business and in the assets that Tokyo Broadcasting has. It’s a stock that we wanted to be fairly patient with. The Japanese teams are very much value oriented. Typically, when you get very high volume spikes in Japan, my experience tells me that it’s an opportunity to sell. It hit well above our fair value target and we did much better than we anticipated. Q:  Who is responsible for establishing the fair value target? A: It’s established by the Japanese team. Normally there’s one principal person who is the owner of an individual stock. The entire team may own it, but there’s a clear fair value for them. When it breaks through that fair value, that’s a trigger for deciding whether they want to wait because of the momentum, or they want to sell. Q:  Is there a counterweight balance as a part of the process? A: That's the role of the head of the Japanese team is to act as that person. I have both formal and informal meetings with each of the managers. As part of the formal process, the managers go through any purchases that they might make. That is a point to ask them questions and I focus on quality issues. For example, recently we’ve had another Japanese company, Daiwa Securities, which is a proxy for the market. Three or four weeks ago it went through its fair value target. I talk to the guy in Tokyo on a weekly basis and he decided to wait for the results that were coming out soon to see if the fair value target might change. Which is exactly what happened, because the results were significantly better than anticipated. Since then the stock has continued to be quite strong and we'll probably sell it by the end of the year. We've taken some profits already, but we've not sold it out completely. I discuss such issues on a regular basis with each of the managers, but I wouldn't ultimately say, “you cannot buy that stock.” I would only do that if after reviewing our overall sector weightings, I felt that we were getting very exposed to a particular sector, so I may ask them to reduce the stocks in that sector. Q:  So Tokyo Broadcasting was a value play. Can you give us an example of your growth-style stock picking? A: Another example would be a European company called SGS, which is in inspection, testing, and certification. If you’re a big importer of steel and you’re buying from a Chinese steel mill, they'll go on the ship and certify the quality, the number of tons, etc. The company has been around for a long time. It’s one of those lovely businesses with only two or three players. It’s a classic sort of growth stock, because it’s one that’s going to grow at 15% to high teens per annum. They used to be family owned, although there’s always been a share listing. This is a business we know very well. We’d seen them many times over the years and had owned them in our broader portfolios. The company typically trades at a premium to the market's P/E, but at this low point its P/E was in line with the market. At high points it tends to trade at a 50-percent premium, so this was an opportunity to buy a high-quality growth stock that we knew at a very low level. Now it’s trading at about a 30% to 40% premium to the market. It’s not at the peak point where we would sell it and for the moment we're happy owning it. We might sell it if we came across a better idea with more potential, but there aren't that many quality growth stocks in Europe. Q:  How do you approach the risk control aspect of managing the portfolio? A: Our risk controls are relatively minor because we've set this fund up to take risk. With a 55 stock list, a fair number of stocks will be 2% of the portfolio, and some of them will be different from the index. We don’t want to have 30 stocks where Henderson owns 20% of the company because that is a risk. We have rules to avoid owning much more than 5% in a company. I focus mainly in two areas of risk control. First, I review the regional allocation on a regular basis to make sure that we’re not getting too far away from the benchmark and that the country weightings are not dominating the stock weightings. I want the stock weightings to be our biggest contributor to risk. The second part is looking at the sector weightings. Since they don't change too often, I monitor them monthly to make sure we’re not getting too far away from the index. We don't target tracking errors or other types of risks specifically; it is more looking at risk from a common-sense perspective.