In the broader context of money management, Samuel S. Stewart Jr. would be considered old-school.
The 69-year-old founder and chairman of Wasatch Advisors Inc. believes in getting to know the people running the companies in which he invests.
“Our usual due-diligence process involves looking through company materials, visiting the company and talking to management,” Mr. Stewart said. “It's important for us to understand who the people are.”
Mr. Stewart founded Wasatch Advisors in 1975 after leaving a job at the Securities and Exchange Commission, where he was chief financial officer in the Division of Investment Management and Regulation. Prior to that, he taught finance at Columbia University.
These days, Mr. Stewart is busy pushing Wasatch's trademark bottom-up strategy beyond U.S. borders as lead manager of the Wasatch World Innovators Fund.
Launched in December 2000 as the Wasatch Global Science and Technology Fund, the fund changed its name about a year ago “to better capture what we are really trying to do — and because we realized we were getting treated like a tech ETF,” he said.
The $130 million fund, which has a four-star rating from Morningstar Inc., is everything one might expect from a Wasatch product.
There are about 70 positions, the annual turnover rate is under 100%, and there is no fear of smaller companies — even in a global fund.
The portfolio's holdings range in size from Apple Inc. (AAPL), which has a $522 billion market cap, to data storage provider Silicon Graphics International Inc. (SGI), which has a market cap of just $173 million.
“We will try to stay away from tiny, tiny startup companies, but we don't really have a set market cap range,” he said.
As part of that boldness in taking positions in smaller companies, investors sometimes will be exposed to some volatile stocks, or even a volatile portfolio.
Silicon Graphics, for example, is down more than 55% from the start of the year, compared with a 3.8% gain by the S&P 500 and an 18.2% gain by the computer systems category, as tracked by Morningstar.
However, Silicon Graphics beat the benchmarks in each of the past three years, with an average return of 44.7%.
Technology is the fund's largest sector, followed by health care, but no macro call has been made on any sector, Mr. Stewart said.
“Our most systematic screen is looking for two kinds of things,” he said. “We're looking for companies that are growing faster than the market, and companies that are scaling well with revenues growing faster than expenses — and with increasing margins.”
Even though the World Innovators Fund is global, it has a 55% weighting in the U.S, where, as Mr. Stewart noted, “things seem pretty straightforward as we sit here and look at the problems in Europe and China.”
“Even though the U.S. economy is slow right now, at least we're having a recovery,” he added.
Wasatch Advisors, which has $12 billion under management, is based in Salt Lake City, where Mr. Stewart was born and raised.
Mr. Stewart, who stepped down as chief executive in 2009 but has no immediate plans to retire from portfolio management, built a company with a solid, if sometimes unorthodox, reputation.
For example, while most fund companies will introduce a “soft close” to new investors when assets reach a certain point, Wasatch tends to favor the hard close that prevents even existing shareholders from adding new money.
Jeff Tjornehoj, head of American research at Lipper Inc., recalls Wasatch taking its hard-close policy to the extreme in 2003, when the Wasatch Micro Cap Value Fund (WAMVX) closed to investors on the same day it opened — after reaching $100 million in assets.
The fund reopened to investors in 2008.
FUND BLOAT
“Back in late 1990s, during the tech bubble, they closed a lot of funds, and not to just add allure to the name,” Mr. Tjornehoj said. “They were worried about the funds' getting too bloated.”
Mr. Stewart is now co-managing some portfolios alongside his 35-year-old son, Josh.
“He may ultimately replace me, but right now, investing continues to be enjoyable,” the elder Mr. Stewart said. “For me, it's like going to work every day to try and solve something.”
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