Mr. Goldman: The Guardian Life Insurance Company of America was founded in 1860 and is currently the fourth-largest mutual life insurance company in the US with 34 billion in assets. Guardian Investor Services LLC is a wholly owned subsidiary of Guardian Life and is the investment adviser for its US mutual funds. In addition to overseeing Guardian's equity department, I am the Portfolio Manager for The Guardian Park Avenue Fund, which is our large cap core fund. It is encouraging to realize that Guardian and The Guardian Park Avenue Fund, which is Guardian's flagship fund that started in 1972, have weathered numerous national and global events that have had significant impact on the financial markets over the years. The Guardian Park Avenue Fund is one of the few large cap blend mutual funds to have beaten the S&P 500 Index since its inception through July of this year, despite underperforming for a year or so before my arrival. Since June 1972 the Fund is up 13.4% annually versus the S&P 500, which is up 11.0%. Year to date 2002, the S&P 500 is down 19.9%, and the Fund is down 18.8%. We emphasize both maximizing returns and minimizing risk in our investment management, which, we think, is in contrast to what most mutual fund managers do. For example, year to date, the Fund beat the S&P 500 by 1.1% and achieved this with annualized volatility that was 1.8% less than the S&P 500.
TWST: That's a pretty impressive performance in this difficult
year. Can you describe for us your investment decision-making
process?
Mr. Goldman: The Guardian Park Avenue Fund is a large cap core
equity portfolio intended for investors who want low- to
moderate-risk stock exposure. We seek to obtain higher returns at
lower risk than our benchmark, the S&P 500. The three chief
characteristics of our investment philosophy are high quality,
style consistency and turnover relative to our peers. To
elaborate a little further on these, we invest in high-quality
companies, which we define as firms with dominant market shares
in attractive businesses. These companies have to meet our
standards when we analyze their balance sheets and the quality of
their earnings. In addition, their managements should be
recognized as leaders in their industry and should have proven
track records. We have dedicated analysts who specialize in
different sectors whose job it is to identify these companies and
opportunistically buy them when their valuations are attractive.
The second characteristic of the Fund is our disciplined
investment process, similar to how institutional assets are
managed ' which is where my team's background is. There are many
aspects to disciplined, institutional investing, but foremost is
our tight integration of risk modeling, which helps us avoid
style-drift and any oversized investment risk. My observation is
that many mutual fund portfolio managers are willing to
dramatically change the investment style of their mutual funds as
they myopically try to beat the market. For example, in the most
recent market bubble many portfolio managers of value funds
drifted and became overexposed to growth; likewise, some small
cap managers became overexposed to larger cap companies. When the
music stopped, they were all caught with too much risk relative
to what was expected of them by investors who bought their value
and small cap funds. It reminds me somewhat of a bunch of six-
year-olds playing soccer. All 20 kids chase the ball wherever it
goes on the field. They don't have the discipline to stay in
their positions. I will stay disciplined and the Fund will remain
a blended, core large cap portfolio, just as a defender on an
experienced soccer team will stay within his designated area of
the field. The benefit of this disciplined approach to investing
is clear when you consider the retail investors in 2000 who were
surprised by how exposed they were to large cap growth companies.
They thought they were broadly diversified because they owned a
variety of funds with different styles, and they assumed that the
portfolio managers would remain disciplined to their respective
styles. Institutional investors realized several decades ago that
to properly implement an asset allocation strategy, you need to
have individual portfolios that stay true to their style; this is
what we're offering to mutual fund investors. The third aspect to
our investment strategy is our emphasis on low turnover relative
to our peers. We try to keep our turnover lower than the industry
average.
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