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Alex Motola, Thornburg

To Alex Motola, who studied to become a professor of medieval history, the life of the mind needs a daily challenge.

Karen Dolan, 06/17/2008

Alex Motola's path to becoming a portfolio manager started in medieval times.

In the early 1990s, Motola was on track for an academic career as an undergraduate at the University of California, Santa Barbara's honors program for history. He was a triple-major in creative writing, history, and medieval studies and thought he'd become a professor. "I had read everything written in England between the birth of Jesus Christ and King Richard's succession," Motola says. "Literally."

Fast-forward to 2008, and Alex Motola is sitting in his cramped office in Santa Fe, N.M., managing $3.7 billion for Thornburg Investment Management using a growth-oriented investment formula.

That's not as big a contrast as it first may seem. Motola has shifted the focus of his considerable research skills from Chaucer to the stock market. He retains an academic's critical eye, and old study habits are hard to break. He still disdains secondary sources, for example. "I would always go back to primary source," he says of his college studies. "I still have a strong sensitivity to going right to source documents, and I'm even suspicious of them. There usually are hidden agendas."

That is true of the stock market and the reams of analysis circling it. Company management and Wall Street analysts tend to be overly optimistic or pessimistic, which is exactly what Motola seeks to look past and exploit.

Investors and advisors appreciate Motola's work. "When you sit down and you talk to Alex, you realize how brilliant he is, what a phenomenal listener he is, and how passionate he is about investing," says advisor Mark Biegel, of Biegel and Waller in Columbia, Md. "You can't see that on a piece of paper."

A Life in Finance Takes Hold
The boundaries of a professor's life drove Motola to switch from academic pursuits to a more pragmatic career as a money manager. He didn't want to be a person who knew the most about one thing. He instead preferred to be on a dynamic learning curve, one that was changing all the time.

"My expertise in British and French history seemed limiting in a way that what I do now isn't," he says. "I learn about new companies and new industries all the time."

The path Motola followed was not by chance. His father, who is now a retired accountant, advised him against studying business as an undergraduate. He counseled his son to learn how to think, write, and study something he enjoyed in college. His father reasoned that Motola could always later go to business school, which is exactly what he did at the University of California, Berkeley.

After graduation, Motola used the local newspaper's want ads to find his first and second jobs in the financial field. He started off working for California-based CoreLink Financial and later joined Insight Capital in the San Francisco Bay area, where he eventually served his first stint as a portfolio manager.

He was drawn to Thornburg in 2000 for a number of reasons. Insight had relied heavily on momentum investing, which was a popular, and successful, investment strategy in the late 1990s. It emphasizes stock prices as much as fundamental factors such as earnings and sales growth. Motola resisted the price momentum side of the strategy, even though it often led to good results during that time. His leanings were rooted in research, not the price charts a computer was spitting out. Motola liked the fundamental focus that Thornburg placed on all of its investment strategies. He was also impressed with the firm's founder, Garrett Thornburg, and his entrepreneurial spirit, as well as others at the firm, such as now-CEO Brian McMahon and value manager Bill Fries, who received Morningstar's International-Stock Manager of the Year award in 2003.

Three Buckets, One Compact Portfolio
Thornburg and Motola launched Thornburg Core Growth THCGX soon after he joined the firm. In early 2007, he started managing freshly minted Thornburg International Growth TIGAX, a natural step for Motola, who pays significant attention to overseas stocks for Core Growth. Motola's strategy for both funds starts like many others', but it doesn't lead him to the same stocks. The portfolios he manages hold a distinctive mix of companies, and they do not closely resemble benchmarks or peers.

Motola applies proprietary quantitative screens that help turn up investment ideas. The screens look for factors such as valuation, capital use, and margins. Motola and his team also uncover new ideas as they research other companies, attend conferences, and read. The best ideas make a research priority list, and those are the companies that the team spends a great deal of time on, building financial models to assess their valuations and potential.

The process sounds a lot like what other managers do, but it has a deliberate purpose for Motola. He knows that his research tendencies could cause him to be weighed down in the details. He wants to focus on the right details, though, so he designed his system to help him dive into the most relevant minutiae to give the portfolio an edge. Perhaps the most distinctive part of Motola's approach is his execution of it. He believes in running a compact portfolio of 30 to 40 names, and he spreads his assets evenly across three buckets: growth industry leaders, consistent growers, and emerging-growth companies. He lets his sector weightings fall where they may. As a result, the fund is focused on fewer stocks and sectors than are its peers. Tough times for the fund's stocks, therefore, will lead to tough times for its shareholders. Thornburg Core Growth has taken it on the chin since late 2007, as stocks in each bucket have been slammed.PAGEBREAK

Biegel, the advisor, is unconcerned. "We try to buy smart people and understand that if you're going to have a growth manager, you're going to have to expect volatility. We limit the downside in other ways, not by our choice in managers."

The short bouts of underperformance haven't derailed Motola's long-term record. Since its inception in 2000, the fund has outpaced the average mid-growth fund by nearly 4 percentage points a year through March. Thornburg International Growth is still too young to draw meaningful inferences about its performance, but it has gotten a good start, and the same philosophy and discipline back it. Breaking the Common Mold

Motola, the growth manager, says that he frequently talks with Fries, the value manager. They're the polar opposites of how a growth and a value manager are usually wired. Motola puts it best. "You'd think he runs a growth fund and I run the value fund," he says. "I'm more cynical and worried about what can go wrong, and he's full of optimism and sees companies full of promise."

It's a healthy contrast, and their dialogue has been productive. They hold some of the same stocks. Google GOOG, for example, resides in Fries' fund, Thornburg Value TVAFX, as well as in Thornburg Core Growth.

Looking at things differently doesn't end there. "If all you've learned in business school is to read Warren Buffett and to buy cheap companies that are great businesses--that's obvious," Motola says. "Guess what? The whole world's looking for that. It's not an investment strategy."

Motola doesn't think that his investment strategy is the only one worth using. Although he stays true to his discipline, he encourages members of his team to develop their own philosophies.

"I could sit all analysts down and say, 'Here's exactly how I do it.' If you don't believe in your own core analytical approach, you're just not going to be that good of an analyst," he says.

With the research-charged way he approaches investing and the intellectual freedom he invites in his analysts, maybe Motola did become something like a professor after all.

Karen Dolan, CFA, is Morningstar's director of fund analysis.

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