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Get Four
|  | JANUARY 7, 2005
 FUND Q&A Big-Game Value Hunters Two managers from Northern Large-Cap Value Fund explain their "somewhat contrarian" investing philosophy Team-managed Northern Large-Cap Value Fund (NOLVX ) is run with a conservative investment philosophy and a relatively long-term horizon. It seeks undervalued stocks of mid- to large-cap companies that pay a minimum dividend yield of 2%. The fund's $1.04 billion in assets are distributed among 49 holdings -- none higher than 2.5% of total assets at present -- in nine sectors. Financials and industrials make up the largest weightings -- 21.9% and 17.7%, respectively. For the three years ended Nov. 30, the fund returned 6.8% on an annualized basis, vs. a 4.9% gain for its large-cap value peers, and 5.8% for its benchmark, the BARRA Value Index. The results were achieved with slightly less volatility, earning the portfolio a 4-Star fund ranking from Standard & Poor's. The fund's average price-to-earnings ratio as of Nov. 30 slightly exceeded its peers (17.2 vs. 16.9). Expenses on the portfolio are moderate at 1.10%, vs. 1.33% for its peers. In the past year, the fund has seen a change in personnel, with the departure of three of its nine team members, including its two lead co-managers and a third manager. It's now run by three new co-managers: Stephen Kent and Betsy Turner, since February, 2004, and Stephen Atkins, as of Oct. 1. Five additional portfolio managers have input, completing the team. The fund was established in August, 2000, by Chicago-based Northern Trust, shortly after it purchased Carl Domino Associates, the fund's predecessor firm based in West Palm Beach. Kent joined Domino in 1992, Turner in 1993, and Atkins in 1998. Carol Wood of Standard & Poor's Fund Advisor spoke recently with Atkins about the fund's investing strategy and top holdings. Bill Belden, product manager at Northern Funds, also participated in this interview. Here are edited excerpts of their conversation: Q: How would you describe your investment philosophy? Atkins: We're a traditional large-cap value fund. We look for high-quality, mature, blue-chip companies trading below their intrinsic value that pay at least a 2% dividend. Our traditional large-cap value philosophy differentiates us from deep-value funds, which might buy distressed names hoping they'll turn around, and relative-value funds, which I see as value funds that don't want to be contrarian. But I think any value manager has to be somewhat contrarian. Q: What kinds of stocks do you hold? Atkins: Our portfolio holds recognizable names that have been around for years. We hold onto stocks for three to five years, because we think you've got to wait for the story to turn around. The portfolio tends to underperform in fast-rising bull markets, but to outperform in down and flat markets. Q: What's your investment strategy on the fund? Atkins: Eight portfolio managers sit on our investment strategy committee, which meets every Friday. Any portfolio manager can present new ideas and have input into the product. Each stock in the portfolio is covered by one of our managers, who communicates information to the rest of us. We're generalists. We want to understand a variety of industries. For instance, I cover names in health care, energy, and financial services. Our industry analysis is completely bottom up. We talk to the Street to get analysts' opinions, but because we're contrarian, we often want to go against what the Street thinks. Q: What is your benchmark? Atkins: The BARRA Value [index] is our primary benchmark, and our main objective is to outperform it. We're starting to integrate the Russell 1000 Value index into our framework, and we strive to outperform the S&P 500 over a full market cycle. We don't mind being 50% underweighted, or 200% overweighted in a sector relative to the BARRA, if that's where the value is. Q: Will the fund's recent management changes affect its operations? Atkins: I expect things to remain the same, because we manage accounts on a team basis. We have a fairly simple process and defined rules that make the process repeatable and predictable over time.
BW MALL
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