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March 16, 2004 at 07:00 PM
Quick Take: Diane Jaffee keeps an eye on stock prices since she believes value investing offers the shareholders of TCW Galileo Diversified Value Fund/N (TGDVX) a safety net in good times and bad. While the manager believes markets are efficient over the long term, she finds they are often slow to see companies turning themselves around.
Jaffee says a key strength of her fund’s management team is finding catalysts that unlock shareholder value. These can include new managements, new product cycles, or earnings surprises. The fund’s returns indicate this strategy has been successful.
For the five years through February, TCW Galileo Diversified Value rose 8.4%, on average, versus 4.2% for large-cap value funds. For the one-year period through last month, the fund surged 54.7%, versus a 40.1% gain for its peers.
According to Standard & Poor’s data, the fund is slightly more volatile than its large-cap value peers based on its three-year standard deviation. Since 1999, the fund has outperformed its peers in three of the last five years.
The Full Interview:
S&P: What is your basic investment philosophy?
JAFFEE: We focus on relative value, looking for stocks selling at attractive valuations. We like companies whose earnings have been low historically. We try to find unpolished gems that have been overlooked and have a fundamental catalyst that can change their dynamics.
S&P: What types of catalysts do you look for?
JAFFEE: They include new managements, new product cycles, or earnings surprises. We feel stocks with catalysts tend to have higher future earnings, and sell at more attractive valuations than the overall market. We are great believers in efficient markets over time.
S&P: Would you describe a holding with an attractive catalyst?
JAFFEE: J. C. Penney (JCP) is planning to sell its Eckerd division. We feel J.C. Penney has the potential to unlock shareholder value.
S&P: What are the main steps of your investment process?
JAFFEE: First, we look at valuations. Typically, we look at price to cash flow, price to book, and price to earnings. At the front end, we screen for companies with market caps greater than $1 billion. Then, we focus on fundamentals. Our portfolio construction process is bottom up.
S&P: How many holdings does the fund have?
