What is the history of the firm? A: Roosevelt Investments traces its roots back to 1971 when P. James Roosevelt, a cousin of former President Theodore Roosevelt, founded the investment advisory firm, P. James Roosevelt, Inc. The firm managed assets for endowments and individuals, including several members of the Roosevelt family, and the Theodore Roosevelt Association. In 2002, Roosevelt merged with Sheer Asset Management, Inc. under the name The Roosevelt Investment Group, Inc. Today, Roosevelt Investments manages or has under advisement in excess of $4 billion in assets. Our investment strategies include the All Cap Core Equity, Large Cap Core Equity, Small/Mid Core Equity, Global Enhanced Fixed Income, Current Income Portfolio (CIP), Intermediate Fixed Income, Core Fixed Income and Balanced separately managed accounts. We also have two mutual funds. What are the fundamental principles of your investment philosophy? A: We embrace a thematic, risk-conscious approach to investing. We seek to identify undercurrents of structural economic, political, social, demographic, and/or industry-specific change that may serve as a catalyst for investment opportunity. This perspective fosters idea generation and helps to produce significant portfolio diversification. Our thematic framework is combined with an active risk management overlay, which helps to protect principal in turbulent market environments. How would you describe your investment discipline? A: Our flagship All Cap Core investment strategy breaks away from the traditional mold of style box investing and pursues investment opportunity regardless of market capitalization, style orientation or geographic location. This flexibility gives us the ability to react to changing market conditions, to increase our universe of investment opportunities, and to employ a global economic perspective. The only portfolio restriction we enforce is the exclusion of micro cap positions due to potential liquidity concerns. Although we are primarily a domestic stock investor, we can allocate up to 15% of the Fund’s assets to international equities through ADRs. How does the thematic process work? A: Our investment committee seeks to identify structural economic, political, social, demographic, and/or industry-specific changes from a top-down perspective. This top-down, macro-economic perspective can often identify drivers of sustainable growth, and find opportunities where we can capitalize on market inefficiencies. Identified themes are then further developed with fundamental bottom-up research. Extensive financial statement analysis, peer comparative analysis, valuation modeling, and management assessment is considered by each member of our investment team in determining stock selection. As a risk-conscious manager, we want to hold companies with the most attractive risk-reward opportunity. Typically, the Fund includes 8 to12 themes and holdings within those themes comprise approximately two-thirds of the portfolio. Examples of current themes include energy arbitrage, mobile wallet and the emerging-market consumer. The remaining one-third of the portfolio includes companies that hold particular promise but do not fit into any of our thematic buckets. Using a theme-based approach enables our investment team to focus on certain promising areas of the market and narrow a wide universe of stocks. We invest in companies that we believe will stand to benefit from a thematic change and, more importantly, have stock valuations that do not fully reflect their potential. In our opinion, that’s the opportunity – to find a company where a significant tailwind is not priced into its current expectations. This thematic approach and resulting stock selection has enabled Roosevelt to provide, over the years, above-average returns with below-average risk over full market cycles. What is your analytical approach to finding themes? Would you illustrate with a few examples? A: With regard to theme discovery, our investment team is deeply involved in proprietary industry research and spends a considerable amount of time listening to company presentations and industry analysts. We are looking at big picture shifts and at times may look at a potential theme in a different way than the market. For example, our energy arbitrage theme is a result of newly found sources of natural gas in the United States as well as drilling techniques to access the gas. A few years back, natural gas production in the U.S. was declining. Recently, there has been a tremendous amount of natural gas discovered from shale formations. This finding has served to propel the overall industry and we find its current growth prospects very promising. As part of the energy arbitrage theme, we favor companies that are involved in pipeline infrastructure. The new shale discoveries are located throughout the United States and the infrastructure needed to bring natural gas to market will have to be further developed. Within the industry, there are still low-risk stocks that are regulated by the federal government that are experiencing a sudden and significant growth catalyst. These companies generate strong earnings and will benefit, in our opinion, as significant capital expected is deployed to further develop pipeline infrastructure. As a result, we have included these low-beta-type companies in the portfolio because they represent an attractive blend of low risk and strong future growth potential. Would you discuss another theme? A: Another of our themes is what we refer to as the emerging-market consumer. This theme reflects the growth of the middle class in select emerging markets. We believe many emerging market economies are in better fiscal shape and have stronger growth profiles than many countries in the developed world. Moreover, their growing middle classes have increased purchasing power as a result of rising incomes. We believe that companies that are catering to the emerging-market consumer will do well over the long-term. Any near-term concern, such as China’s monetary tightening or a slight cooling of their economy, may cause some short-term volatility but we believe this trend is very powerful and has far-reaching implications. One interesting example in the emerging-market consumer space is Novo Nordisk A/S. It is a European pharmaceutical company with a strong presence in the diabetes market. We are witnessing a rapid change in diet in many emerging markets, particularly China and India. Unfortunately, one of the effects of this change is increasing obesity. Compounding the problem is that more people within those regions are moving from rural to urban areas and their daily exercise is declining. As a result, diabetes has been on a significant rise. Novo Nordisk has built a strong sales force in emerging markets, particularly in China. It is capitalizing on the growing demand for pharmaceuticals aimed at containing the disease. We expect earnings will rise accordingly and that its sales infrastructure will maximize future product distribution. How do you select companies within a theme? A: Within a theme, we look at the future earnings power of specific companies that we believe will benefit from the larger trend. Revenue generating capacity and margin analysis is performed and we evaluate the results based upon a discounted valuation that is compared to a company’s current market price. How do you value companies? A: We examine a company’s valuation on a historical and peer comparison basis. If we are confident that a company’s future earnings power will exceed its current multiple, then the company may be considered for portfolio inclusion. Consider our recent addition of Wynn Resorts, Limited, a casino company, as an example. In our view, Wynn will benefit from our emerging-market consumer theme. Wynn has historically had a high valuation multiple because of its exposure to Macau, a gaming market favored by the Chinese consumer that is growing at a handsome rate. When we entered the stock at approximately $80 per share, it may have been considered expensive. Our forward five-year analysis, however, included not only the company’s prospects but also a consideration of China’s double-digit GDP growth rate and an expected increase in discretionary spending among its emerging middle class. In addition, significant infrastructure developments had been underway in Macau, including a new high-speed rail system and a doubling of the airport’s capacity. These factors portended that Macau’s annual future growth rate would likely increase approximately four times that of China’s. Our initial valuation of Wynn was similar to its current market price. However, when we considered the additional factors taking place in Macau as well as the fact that another Wynn casino was anticipated which had the potential to double its gaming positions, the stock’s higher earnings growth potential made it a compelling investment. Since our initial purchase, the stock has done quite well. How do you build your portfolio? A: We typically hold between 50 and 70 holdings in the portfolio. Our benchmarks are the Russell 3000 and the S&P 500 indices. Our approach typically represents 8 to 12 themes, and individual stock positions are generally less than 4% or 5% of the portfolio’s total net assets. Also, we limit any sector exposure to 25% of the portfolio’s assets and favor a mix of growth and value stocks. We will, however, limit either style to no more than 70% of the portfolio. What kind of risks do you focus on and how do you contain them? A: As a risk-conscious manager, we tend to do very well in down-market periods. Our active risk management techniques have a proven record of principal protection. In fact, over various full market cycles we have been able to provide above-average performance with below-average risk. In our view, there are different kinds of risks and factors that can cause the market to fall. To protect principal, we use several risk management tools including exchange-traded funds (ETFs), Treasuries or precious metals. Typically, we use broad macro shorts. Precious metals ETFs may also serve as an appropriate hedge. By using ETFs we may be able to maintain a higher beta position, assuming a high conviction level. We offset the corresponding risk by increasing our position in ultra shorts. We also use zero-coupon Treasury bonds as a hedging tool, which are particularly attractive in “flight-to-quality” situations. Alternatively, we may add to our cash position as another way to reduce overall portfolio risk. We analyze numerous daily economic data points as well as fixed income spreads, volatility indices and various market indicators to give us a better feel for macro risk levels. At the industry and company level, we are in contact with company management teams, customers and suppliers to gauge potential business risks. Through a proprietary aggregation process, this macro and fundamental risk analysis will dictate the execution of our risk mitigation approach.