Q:  What is the history of the company? A : Rainier Investment Management Inc. is an employee-owned boutique firm that is dedicated to enhancing client returns through insightful and disciplined identification of growth companies. Located in Seattle, Washington, the company was launched in 1991 and currently manages $18 billion in assets, including separately managed accounts and the Rainier mutual funds. Q:  What is the investment philosophy behind the mid cap growth fund? A : Our philosophy in all of our growth strategies is very straightforward. We invest in quality growth companies at prices that make sense. We believe that rewarding stock performance comes from companies with superior earnings growth, attractive relative valuations, financial strength and trading liquidity. As bottom-up stock pickers, we arrive at our decisions for stock selection after rigorous fundamental analysis by sector specialists. Q:  How do you transform your philosophy into an investment strategy? A : Our belief is that companies with a sustainable competitive advantage generate superior returns and command premium multiples. However, company miscues or industry headwinds can cause such companies to trade at a discount as investors tend to focus on near-term difficulties, thus overlooking longer-term potential. As a whole, our Growth at a Reasonable Price philosophy seeks to capitalize on the investment opportunity created by this mispricing. Q:  Would you describe your research process? A : We follow a four-step process in our research. The first step is dedicated to identifying stocks that exhibit the growth and price characteristics we are looking for and are worthy of additional investigation. The second step is to conduct in-depth fundamental analysis on those companies to determine if what appear to be strong fundamentals on the surface are confirmed by a deeper look at company financials, management and competitive position. The most attractive candidates are presented to the portfolio management team for final confirmation that the stock meets our investment criteria. For those stocks that we select, a portfolio weight and price target are assigned. We will then proceed with the final step of determining the appropriate weighting for the stock in the portfolio and ongoing assessment of company fundamentals. Q:  Could you elaborate on each of the four steps in more detail? A : We start with a pool of about 2,500 stocks in the mid-cap range. We screen this broad universe to identify within each industry the companies that have the highest projected earnings growth, the most potential for favorable estimate revisions, and are trading at reasonable valuations. We will then rank these stocks by earnings growth, valuation, and estimate revision in order to zero in on the names with the best combination of these three elements before arriving at the second step, which is the fundamental analysis. In researching these names further, the information that we analyze is freely available to anyone in the market. So, how are we different? We believe that if an analyst focuses on a particular sector of the market on a day to day basis, they tend to have a better feel for the pulse of that particular sector. Because the dynamics behind earnings growth are different across various industries, the experience of having analyzed the sector for a long period of time makes a significant difference in understanding a constantly changing competitive environment. We have a team of nine portfolio managers that also act as analysts. Each portfolio manager is a specialist in a few sectors, with between two and four PMs working on each sector. This team-based approach allows our portfolio management team to identify the most compelling investment opportunities within each sector. To discover these opportunities, the portfolio managers scrutinize the financials of companies, including those that have been ignored by the market, in order to find the competitive strengths of each candidate. The analyst then does a comparative analysis of the company with its peers to single out the most attractive candidates. Before we arrive at the valuation or the fair value of a stock that is a potential candidate for inclusion, we look at three-, five- and seven-year trailing relative multiples valuation to get a preliminary assessment of how the stock’s earnings and cash flow have been assessed by the market. The purchase opportunities would be skewed more towards stocks that are below the mid-point of the market range, while de-emphasizing stocks that are priced at the upper end of their historic valuation range. We then conduct a thorough analysis of the financials of these companies including analyzing specific catalysts to growth. Once the attractive candidates are picked, the analysts present their analysis to the larger portfolio management team along with an explanation of the rationale behind the particular stock as well as the potential price appreciation. All portfolio managers and traders work closely together in the same room, which facilitates immediate discussion of ideas and efficient execution. As soon as the rationale is discussed and accepted by the team, we determine an appropriate weight for the stock in the portfolio. The final step that comes after portfolio construction is the continuous monitoring of the stocks within the portfolio with regard to the price targets, company prospects as they develop, and the sell discipline. Q:  How do you structure your portfolio? A : We believe that broad diversification is essential in controlling risk, and a sound principle when it comes to structuring a portfolio. When we use the term we do not just mean diversification by individual stocks but also diversification in sector representation. We also believe that when you look at the entire market over time, it is clear that growth does not reside exclusively in certain sectors. Growth is dynamic, and when we look at different periods in time, different sectors and different stocks have been at the top of the heap. Diversification increases the chance that we will be exposed to some of the stocks at the top at any given time. In constructing the portfolio, we follow the weightings in the Russell Midcap Index by limiting our weighting to plus or minus 5% of each sector in the index. Q:  What is your sell discipline? A : We will sell stocks for three reasons. The first and most desirable reason is when the stock reaches our price target. Sales proceeds are reinvested to either new stocks or other positions with greater price appreciation potential. The second reason to sell is when we find a better investment alternative in the same sector. Lastly, we will sell if there is fundamental deterioration in the underlying company fundamentals. Q:  Do you follow the market analysis for estimate revisions of a name? A : Although we consider the market analysis, we do our own in-house estimate revisions while we do our regular monitoring. We also continuously evaluate and update the price targets based on the prospects for the company in that sector at that particular time. To do this we use an internally developed software that tracks a broad array of fundamental and valuation data, allowing the portfolio management team to continuously track portfolios and potential candidates as well. Q:  What is your benchmark index? A : As mentioned earlier, we follow the Russell Midcap Index for the purposes of screening names and sector weightings This helps to ensure that the portfolio is more broadly diversified and less concentration in traditional growth sectors. For performance evaluation, we look at both the Russell Midcap Index and the Russell Midcap Growth Index. Q:  How many names do you typically have in the portfolio? A : The number of names normally ranges from 75 to 150. When we started the fund, we were a little below 100 names but we are now generally above the level of 100 names. Q:  What do you consider as sources of risk and how do you contain risk in the portfolio? A : Our diversification discipline reduces both individual stock risk and sector risk. Additionally, we monitor our positions on a day-to-day basis and compare them to sector weightings in the Russell Midcap Index, which helps us stay within our range limits and follow our risk control guidelines.