Dear friends,
You are cordially invited to join me on a conference call with Bernie Horn, founder of Polaris Capital Management and manager of Polaris Global Value (PGVFX). You’re receiving this note because you asked to be included on the Observer’s conference call notification list. The call will take place between 7:00 - 8:00 p.m., EST, this coming Tuesday, January 13th. To register, just follow
this link.
Mr. Horn and the Polaris team advise Polaris Global Value and sub-advise funds for PNC and Pear Tree. Mr. Horn has been managing global portfolios since 1980, launched Global Value L.P. in 1989, founded Polaris in 1995 and launched PGVFX in 1998. The fund remains small but distinguished. It has a great long-term record and superb tax efficiency, but suffered a terrible ’07 and bad ’08. That cost the fund nearly two-thirds of its assets, though the fund’s assets are a small fraction of the firm’s total AUM. Mr. Horn and his team made substantial and thoughtful revisions since then, and the fund has been in the top 10% of world stock funds over the past 3 and 5 years.
We're likely to talk most about PGV but maybe a bit too about QUSOX, his really good international SCV fund.
If you can make it, you're more than welcome. If you can but you have questions you'd like me to raise with him, just post them below. I've logged the queries from AJ, Vert and Mike and it's likely he'll review this thread before the call. As always, it's just a telephone conference call and I'll try to post highlights and an mp3 afterward.
For what interest it holds,
David
Comments
7p Central?
Please do include QUSOX in the agenda if at all possible.
Gratzi, AJ
Thanks David.
Mike_E
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1. I've seen PGVFX described as a "true, deep value fund". In spite of this, PGVFX seems to always be nearly fully invested, while other "deep value" managers are not shy about holding cash when markets appear too rich. Why does Polaris' "deep value" style diverge from other definitions of "deep value" investing in this way? Would it be accurate to think of PGVFX as more a relative value than deep value fund?
2. I've read that earlier in his career, Mr. Horn used options and similar instruments to enhance portfolio performance and limit volatility. I believe PGVFX also has the flexibility to use similar instruments as part of its investing strategy. Would you provide an overview of PGVFX's use of these instruments and, further, provide a sense of how often these instruments are used in practice?
3. Recently PGVFX took the unusual step of reducing its expense ratio considerably, in spite of what appears to be a rather stable asset base. As a longer-term investor in PGVFX (c.2005) I appreciate this reduction, but am so surprised by the decrease that I am left puzzled as to why this has occurred. Would you provide some context as to what was behind the reduction? (And, thanks !)
4. As a small, independent advisor, Polaris has the potential to offer long-term investors opportunities for long-term outperformance. However, it could also be the case that Polaris' size could create other challenges to achieving outperformance. One of these challenges is attracting and retaining analytic staff. Another is sustaining the culture that has contributed to Polaris' performance in the past. How does a smaller firm like Polaris retain top talent, and get on the radar screen of potential analytic and portfolio management staff?
5. I am interested in understanding more about PGVFX's investment process. Specifically, the PGVFX literature indicates that Polaris uses proprietary software to identify/screen undervalued companies which are then pulled aside for further analytic review. Given the free range PGVFX has in terms of market cap, and breadth of firms in PGVFX's investable universe, I'm having trouble understanding how Polaris' 7-person team can provide coverage of this universe, unless the screening process is highly tailored (and potentially has a forecasting / data mining component). Is Polaris' approach somehow in fact as much based on modeling as much as it is traditional securities desk research? Further, does Polaris rely on outside securities research in building porfolios?
6. After initial screens are made, how does Polaris decide on country/region allocations for the PGVFX portfolio? Are macro-forces / macro research also a consideration, or is it strictly based on valuations (while remaining consistent with the typical allocation targets specified in the prospectus)? Roughly speaking, what is the largest % of the PGVFX portfolio that has ever been allocated to the US? What is the largest % of the PGVFX that has ever been devoted to a single country outside the US?
7. Does PGVFX hedge its exposure to foreign currencies and, if so, how does it make decisions on which markets/currencies to hedge vs. not?
8. What does Polaris feel its capacity is for PGVFX in terms of AUM (including both the fund itself, and any separate accounts)?
9. PGVFX did a remarkable job of avoiding the dot-com bubble, but seems to have fallen harder than the benchmark in the 2007-2008 era. What was the difference in Polaris' process 2007-2008 vs. 2000-2002?
10. How does Polaris define a "value trap", and how does Polaris' process help avoid value traps?
11. Lastly (strictly personal interest, so as to not make everything terribly dour and technical) -- at what age did Mr. Horn begin his career as an investor (what was his first stock)? If Mr. Horn had not pursued a career in investing, what field or pursuit would he have likely ended up in ?