Mr. Schaeffer: In terms of background, the firm was founded in 1976 by Pat Becker, who currently serves as Becker Capital's Chairman and provides oversight and guidance regarding the future initiatives of the firm.
We are an independent employee-owned organization and have been able to attract experienced investment professionals. In total the firm manages 1.7 billion in assets for institutions and individuals utilizing a value philosophy. Our research is conducted in-house and is fundamentally based.
Our large cap value product, which is our flagship, includes both separate accounts and the Becker Value Equity Fund (BVEFX). Presently, the Becker Value Fund has a 5-star Morningstar rating for both the three and five-year periods. There are four portfolio managers that make up our Large Cap Team; Myself, Marian Kessler, Mike McGarr and Steve Laveson. Each of us acts as generalists focusing our research efforts solely on large cap ideas. We are supported by four sector specific analysts.
TWST: How do you describe your value philosophy? Would you give us some idea on what type of value investors you are at Becker Capital Management?
Ms. Kessler: We are large cap investors. At least 60% of both our separate accounts and our mutual fund are invested in large cap stocks. However, we do have some flexibility to find stocks, particularly in the mid-cap range. In the past year we have had an opportunity to look at many companies that have fallen into this territory, but the average market capitalization of our portfolio is still clearly large cap at 38.8 billion. Philosophically, we buy stocks that meet four characteristics; 1) They must be out of favor, 2) They must be average or better quality, 3)Business trends must be stable to improving and 4) They must be trading at a valuation discount to their historic norms, or the market.
We don't buy turnarounds. Instead we prefer healthy balance sheets. We prefer very low debt-to-capital and we're really focused on cash flow and other attractive balance sheet characteristics.
We spend our time researching diligently our companies to discern the direction and the magnitude of the change in business fundamentals, whether that is operating margins, market share, top line growth, bottom line growth. This approach, especially last year, kept us away from a lot of value traps that many large cap value managers fell into.
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