Ms. Posada: American Beacon Advisors was founded in 1986, and originally our equity products consisted only of value funds, which is where most of our assets are today. We have a disciplined philosophy for investing in the value style. All of our equity mutual funds are managed by multiple sub-advisors and we try to select managers whose own process fits very well with our philosophy of value investing. We look for sub-advisors whose portfolios always includes a large number of companies that are cheap today, relative to their forward earnings expectations, two to five years down the road. We have used that philosophy in identifying equity sub-advisors since we opened our doors and even before then in our oversight of the pension assets of AMR Corporation. This is a philosophy that we've used for over 20 years. It has served us well and it has led us to identify superior value managers, some of which were unknown at the time we discovered them and others which we hope to discover in the future as well.
TWST: This has been a difficult year for all investors, but perhaps you can take us through how you faired during the crisis and turmoil in the markets this year and how it has impacted your value investing?
Ms. Posada: It was a difficult year and we certainly were not unscathed in our equity portfolios as we suffered in 2008 and early 2009 along with most equity investors. On the other hand, we did very well in our fixed income portfolios. Our managers are true value managers and they purchase companies that have issues that they determined were temporary and that management had the ability to overcome. All of that ceased to matter during the fourth quarter of 2008 and early in 2009. It seems that there was virtually no place to hide and so our portfolios were impacted by the issues that were going on in the market. We faired better than some as our mutual funds did not have liquidity issues; we were able to fund redemptions with no problem. In that respect, we did well, but our performance was not good on an absolute or relative basis. That being said, it has not changed our approach to value. We believe that what happened last year was extraordinary, and although it could have been anticipated, the timing certainly could not have been. Throughout the period, we continued to apply our investment philosophy and quite frankly, in the upheaval there were many opportunities that were created because of what was going on. Our sub-advisors took advantage of the opportunities created to purchase companies, many of which had great balance sheets and good earnings prospects, whose prices had just come down because everything was being thrown out, the good with the bad. We had an opportunity during that period, fourth quarter of 2008 and first couple of months of 2009 to position the portfolios for a turn in the market, with much higher quality companies than we had had only a year earlier. We did lag in 2008, because we did not take a defensive position.
On the flip side, we were positioning the portfolio for a turn. As it turns out, the turn did come, mid-March. Since the middle of March, our portfolios have performed extraordinarily well, as we expected, given the quality of the companies that we were able to buy at very distressed prices. Year-to-date in 2009, our portfolios are ahead of their peer groups and of their respective benchmarks as well.
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