Depending on the client's investment objectives and financial circumstances, we allocate the portfolio across various asset classes including global equities, U.S. large, mid and small capitalization equities, international equities, taxable and municipal fixed income securities and cash.
Our investments are generally made through no-load mutual funds (although some individual securities may be used). Important advantages of mutual funds include professional management, easy access, daily liquidity and pricing, transparency and protection provided by the industry's regulatory structure.
We are only interested in investing in superior mutual funds, which we think are very few in number. In an effort to find these elite funds, we have adopted a rigorous due diligence process which includes traveling to meet with fund managers and analysts. This is an important and differentiating feature of our research efforts.
Kevin and John with Chuck de Lardemelle of International Value Advisers and Jeffrey Gundlach of Doubleline Capital
We think that having a thorough understanding of the culture at the fund management firm is vital to making a proper evaluation. It is very difficult to gain a true feel for this without having personal contact with the fund's investment professionals, and we find that this is best accomplished by visiting their offices.
These face-to-face meetings are designed to identify intelligent, rational managers who share our investment philosophy, who possess a disciplined investment process, who behave in a shareholder-oriented fashion, who make significant investments in their own funds and who display rigor in their research and analysis.
We generally look for managers who embrace the value investing principles espoused by Ben Graham and Warren Buffett, who apply a long-term, bottom-up investment strategy, who view risk as the possibility of a permanent impairment of capital, who insist on a margin of safety and who commonly run concentrated portfolios. What we don't want to see is an emphasis on asset gathering or a culture of salesmanship.
Beyond our due diligence trips, we also participate in conference calls with the managers, we study fund literature, we read third-party fund research and we consider important characteristics such as:
• Fund size in terms of total assets
• Performance over a full market cycle
• Fund expenses and transaction fees
• Adherence to the investment discipline
• Portfolio turnover and tax sensitivity
• Manager and analyst experience
• Willingness to close the fund
At Peregrine, when we invest in a mutual fund, we expect to be treated as if we were partners.