Q: Do you use the arbitrage between ADRs and the local market pricing?

A: Absolutely. Back in 1990, I wrote a paper in the Journal of Portfolio Management, analyzing the impact of the ADRs vs. the local shares on an investor’s portfolio. That was the basis on which we felt comfortable creating our first ADR portfolio. The Wright International Blue Chip Fund invests in a combination of ADRs and underlying securities, although about 95% of them are in underlying securities.

Q: Do you consider long-term macro trends or you prefer to stick to next few quarters? For example, in the 1990s Mexico was supposed to be the big beneficiary of NAFTA and 12 years later, China and South East Asia are running the show despite Mexico's proximity to the US. Now India is slowly catching up with its economic reforms. How important are such trends in your process?

A: We consider the broad market as well as short-term trends. We used to own companies like Infosys within the portfolio because we felt that the advantage on the software side was clearly something that would be beneficial to the Indian companies. We ran a pure Mexico Fund, so we are quite familiar with the Mexican market. In our experience, each market exhibits its own strengths and weaknesses. For example, the cheaper wages in India and China has allowed their corporations to benefit disproportionately.

You have to focus on companies with competitive advantage, irrespective of where they’re located. Therefore, our focus on global sectors makes a lot of sense.

Q: Could you explain your portfolio construction in terms of risk controls, buy and sell discipline? When do you reduce the holdings and why?

A: The International Blue Chip fund that we manage has 125 names. We don’t take more than 5% bet in any company and we manage our sector exposure much more astutely. We are usually exposed to almost all sectors. We stay away from big sector bets, but we may take bets in the industry groups underneath. For example, while we may be neutral on healthcare, we may overweight the pharmaceutical companies versus the medical-technology companies. The country bet is relatively wider, but is also managed and I have a currency exposure in almost all the major currencies.

The risk control is implemented mainly through an optimizer that helps manage the idiosyncratic risk in our portfolio. The optimizer not only allows managing the risk-return trade off, but more importantly, it allows us to clarify and compare the expectations about our researched alpha-generators. We want the portfolio to exhibit better value relative to the benchmark and to reflect better historical earnings growth relative to the benchmark. We also don’t take significant style bets. If we are providing a client with a large-cap core product, that’s exactly what they are getting. Within our sell discipline, we assess if rankings are deteriorating, what are the reasons, is there a better opportunity in the same class.

Our Fund, with a record spanning 16 years, has one of the longest tenure among international equity funds. Our philosophy of simply investing equally among fundamentally sound companies has evolved to include risk management. Now we are managing the whole process in a very disciplined way, focusing on stock selection, but also managing the risk.