For Subscribers

Get the complete article now!

Six money managers examine portfolio management strategies in the latest issue of The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info550.htm

TWST: Can you please give our readers a brief overview of HighMark Capital Management, as well as your responsibilities there?

Mr. Earnest: HighMark is an investment management subsidiary of Union Bank of California. It manages mutual funds, institutional accounts, as well as separately managed private accounts. My role is the team leader of the Value Momentum Strategy Team, which runs the Value Momentum Mutual Fund. I have been working in investment management for over 30 years with this organization. The Value Momentum style was created in 1984 and was later incorporated into a mutual fund in 1991. The Fund has been continuously managed in the same style since inception, approximately 11 years.

TWST: Everyone knows about growth momentum investing. What can you tell us about the benefits of value momentum investing?

Mr. Earnest: If you step back, value stocks are stocks that are usually less expensive in the market, and there is usually a reason for that. They may be in slow-growing businesses; they may be in cyclical businesses. The management may not be well regarded, and therefore the shares get priced at a discount. There are usually more of this type than there are legitimate growth stocks. This is particularly true in a mature economy such as in the US. So in choosing among value stocks, one needs to find something to aid in achieving above-average returns. Thus, utilizing momentum factors seems to work well within the value category.

TWST: Value has outpaced growth during the past two years. Do you expect that to continue — and if so, for how long?

Mr. Earnest: I have never found a good way of assessing which will do better. Usually what I find is, after one has beaten the other for a couple of years, it will reverse. But I can’t generally find any specific variables that will key that. Obviously, value substantially underperformed through the late 1990s into 2000. Value was due for some kind of a recovery. We didn’t dream that it would do so well, at least relatively, in an environment of severe market stress. Nor did we dream that growth stocks would take the kind of licking that they did in the last year. Both, in fact, happened. We don’t shift between value and growth; we simply try to buy stocks that are attractive and we react to the valuations on an individual stock basis.

TWST: Can you tell us some of the companies that you have selected, and the reasons why?

Mr. Earnest: In raw materials, we’ve been active in chemicals. We own Cabot (NYSE:CBT) and Engelhard (NYSE:EC). Engelhard is a company that has been improving for some time. It is active in catalysts, particularly catalysts aimed at environmental purposes — clean air for motor vehicles. Essentially, it has been doing better than expected for some time. While the stock has moved up nicely, it would appear that it has some more room.

TWST: Richard, is there anything that you would like to add to give a picture of your views or of your work?

Mr. Earnest: There really has not been any period where we have had as many issues to face in making investment decisions. We think it is harder than ever, given such issues as accounting gimmickry; corporate and management abuses; asbestos lawsuits; the developing economic power of China; a very strong dollar, which is making it very hard for US exporters; and the fact that our technology areas have not yet rebounded. We think we have an unforgiving environment out there. Selection of stocks that can navigate through these issues, at prices that are fair in relation to those prospects, is a more challenging problem than ever. Our mission is to find such stocks. But we do think it is harder and more challenging than it has been in the past.

This special Investing Strategies Report includes:

1) Peter F. Ganucheau IV, Principal, Portfolio Manager/Analyst with GSB Investment Management, Inc., examines portfolio management strategies in this timely and deeply informative 11,400-word interview from The Wall Street Transcript.

2) William J. DeRosa Jr., Portfolio Manager with Badgley, Phelps and Bell, Inc., examines portfolio management strategies in this timely and deeply informative 4,500-word interview from The Wall Street Transcript.

3)Jonathan W. White, Senior Vice President and Chief Investment Strategist for Banknorth Investment Management Group, examines portfolio management strategies in this timely and deeply informative 3,100-word interview from The Wall Street Transcript.

4) Geoffrey R.B. Carey and Jane W. Korhonen, both Partner and Senior Portfolio Managers at Brown Investment Advisory & Trust Company, examine portfolio management strategies in this timely and deeply informative 3,500-word interview from The Wall Street Transcript.

5) Richard H. Earnest, Director for HighMark Capital Management, examines portfolio management strategies in this timely and deeply informative 4,900-word interview from The Wall Street Transcript.