Wall Street Transcript Interview with Chris Welch, Co-Chief Investment Officer and Portfolio Manager for Diamond Hill Capital Management, Inc.: Finding Value Among Small- and Mid-Cap Companies

Wall Street Transcript

67 WALL STREET, New York - August 5, 2013 - The Wall Street Transcript has just published its Deep Value Investing Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Small Cap Investing

Companies include: American Equity Investment Lif (AEL), Willis Group Holdings Ltd. (WSH), Southwest Airlines Co. (LUV), Juniper Networks, Inc. (JNPR), Freeport-McMoRan Copper & Gold (FCX), Staples, Inc. (SPLS), Radian Group Inc. (RDN), Best Buy Co. Inc. (BBY), Office Depot, Inc. (ODP), Amazon.com Inc. (AMZN) and many more.

In the following excerpt from the Deep Value Investing Report, an expert portfolio manager discusses his investing methodology and top picks:

TWST: Would you walk us through your stock selection process? How do you find ideas and how do you vet them for inclusion in the Small-Mid Cap Fund?

Mr. Welch: American Equity Investment Life (AEL) is a fixed index annuity provider. They provide products that will grow somewhat with equity market growth, but they'll be protected on the downside like a fixed annuity, so they will only partially participate in the upside if equity markets go up, but they'll get full protection on the downside. And they do that through hedges.

It's really a spread business for them, so they're hedging out and earning a spread on their book of business. And the low interest rate environment has hurt their business, it's hurt their profitability, it's been something that a lot of life insurers have been struggling with over the past few years. But we believe that with a long-term time horizon, this is a good management team, it's a growing business that's been taking share within the annuity business, and we believe there are attractive prospects. So for our investment, we think we may be able to earn on an annualized basis midteens type of returns in this stock over the next five years.

TWST: Is there another example you would share?

Mr. Welch: A recent addition to the portfolio is Willis Group (WSH), which is an insurance broker. It's one of the three large insurance brokers. The brokerage business is a very low-capital-intensity business so it generates a lot of excess cash.

Willis has had some troubles starting with an acquisition they made back in 2008. That wasn't a real good cultural fit for them, and they had some struggles in terms of integrating that. They lost some of the brokers from the company they acquired so that negatively impacted their growth rate. Now they just had a change in management, and we believe they're going to be...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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