Amy Zhang Call Transcript

TRANSCRIPT

Amy Zhang (continued): When you look at our three- or five-year performance, how the strategy has grown, it’s more about price appreciation than inflows.

But then I trimmed quite a bit. I just thought it was expensive. That’s why coming into this year, the health care weighting was much higher. But then tech did better, so then tech grew, but even as tech grew, tech was 35% versus 44%. So that’s Small Cap Focus. For Mid Cap Focus, I changed the portfolio quite a bit. I took a lot of profits in tech so that’s why you see tech as even lower now. There could be periods of time like this with volatility that I think we are weathering quite well, but even if I knew that’s going to happen, like if there is going to be a junk rally, I’m not going to abandon my hidden gems for junk companies just for one quarter of performance. I always believe success for investments is made in years, not quarters. But on the other hand, having said that, I hope you all know that I definitely care about performance, whether it’s short term or long term. It’s very important for me. I run these as absolute return strategies over the very long term, three to five-plus years, even though we’re judged by relative performance. I also invest a lot of my own money in the Small Cap Focus, Mid Cap Focus and Small Cap Growth strategies. Speaker Question: Could you give a couple of examples as to how your credit background helped out from a defensive mindset in the first quarter as well as from an offensive position in terms of when to turn on the switch as far as buying opportunities and when you felt like the market was overreacting. Also, how do you view your portfolios’ cash positioning? Amy Zhang: Cash is always less than five percent, especially in Small Cap Focus, and Mid Cap Focus is also a little fluid because we have been growing rapidly. I mean, we grew from $10 million to now almost $300 million. In February, I took some profits, especially in tech. I always care about risk. If you lose 50%, you’ve got to make 100% to make up for that, so not that we always have that kind of drastic thing but that’s just an extreme example.

There are no challenges in terms of putting money to work because I’m so used to managing the size, but even when we’re super small, no matter what, I always take a prudent approach in terms of building a position. Initially, I usually always thought like 50 basis points, unless something is extremely, extremely cheap. Usually, that’s rare because what we’re trying to do is look at things that are reasonably valued but with fundamentals that are exceedingly strong. And conditions will change, and we always want to leave some dry powder to buy when there are more choices. I really feel like we have a lot of room, but again, performance is the most important thing so that’s what I’m focused on. But I’m not worried and we’re not deterred in any way by capacity at this point. Speaker Question: During the third quarter, when technology fell on a soft spot and was underperforming the market, did you take any particular action and what were your thoughts on if tech and health care would struggle compared to the broader market? Amy Zhang: It usually happens in the third quarter every year because people just sell winners. There’s always a rotation but I actually always felt tech was sort of expensive. That’s why it’s deliberate, like in a sense that health care is our larger sector for Small Cap Focus from the end of last year. I know tech reached new highs but even last year I felt some of the names were not cheap anymore, so it’s more my deliberate attempt. Like the year before, 2018, almost everything did well in our portfolio. And for us health care carried most of the load, and tech a little bit. So, I trimmed a lot of health care and put a lot into tech, as I thought tech was really cheap. And you could see last year was the year of tech, clearly, so that worked out very well. We have many names in Small Cap Focus that went up. I think we owned the five best-performing small cap tech names at one point. They were all up 100%.

Conference Call 6/9