Mr. Nolan: BB&T Asset Management is a subsidiary of BB&T Corp., a super- regional banking company with over 100 billion in assets. We have approximately 16 billion in discretionary assets in Asset Management, and within the complex we have the BB&T Mutual Funds with over 6 billion in assets including fixed and equity products. We cover the entire equity style box within our BB&T Funds group, and most of the funds are run in-house. My particular style box is mid-cap growth. The BB&T Mid Cap Growth Fund that I run has actually been around for quite some time. Its inception was in 1993, though at that time, it was a large cap fund. It didn't migrate to the mid-cap space until the very end of 2001, effectively January 1, 2002. The Fund moved to mid-cap from large cap as a result of the 2000 merger between BB&T and One Valley Bank. I came to BB&T as a result of that merger, and BB&T, as they did not have a mid-cap growth fund, requested that I migrate my large cap growth fund to the mid-cap space in order to fill that particular niche. We tell investors that despite the more than 11-year history, the apples-to-apples comparisons versus other mid-cap growth funds are really only applicable for the last three years. But in those three years, our ranking versus the peer group has been very strong on a one- year and a three-year basis.
TWST: What is your definition of mid-cap, and what are the advantages at
this time of investing in mid-cap stocks?
Mr. Nolan: We define mid-cap as the range between 2 billion and 10
billion in market cap. However, within the Fund we will venture outside
those parameters. We've dropped down as low as 1.5 billion, and in some
cases we will go as high as 20 billion. Now, these are exceptions; the
vast majority of the portfolio, 80% plus of it, is consistently in that
pure mid-cap area. We feel comfortable with a wider range because, if
one looks at the Russell Midcap Growth Index, the Index currently has a
very broad market cap range. It ranges from a low of 600 million to as
high as 36 billion, the result of the WellPoint-Anthem merger. So while
we maintain the focus on pure mid-cap, we feel comfortable straying
outside that from time to time. Currently, we have an average weighted
market cap of 7.9 billion. That compares with the Russell Midcap Growth
Index at 7.1 billion. So we're a little bit above it, but that's
designed specifically to take advantage of what the market is saying at
this point, which is that companies within the Index, with larger market
capitalizations, are performing better than the low-end-capitalization
companies. If one takes the Russell Indexes as a proxy, the mid-cap
space has actually outperformed small and large on a one, three, five
and 10-year basis. So mid-cap performance has been very impressive. Now,
that will differ somewhat if you look at the S&P MidCap 400 and the
SmallCap 600, because last year the small caps did outperform the mid-
caps. But as I said, using the Russell, a broader universe, it does
indicate consistent, long-term outperformance by the mid-cap space. We
feel that the mid-cap sector represents the sweet spot of the life cycle
of many companies. These companies are more seasoned than they were in
their small cap days. Management has learned to overcome significant
hurdles while gaining critical experience, and they've reached the point
where the businesses are expanding rapidly. So we believe that this is
the point for many companies where they are seeing that perfect storm of
seasoned management but yet accelerating growth.
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