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By Greg Carlson | 10-25-2010 10:00 AM

Dreman's Hoover: Fundamentals Trump Hypotheticals on BP

Dreman Value Management's Cliff Hoover says he thinks BP stock is going to go back to the $70-plus level and will reinstate a dividend early next year.

Greg Carlson: Hi, I'm Greg Carlson. I'm a fund analyst with Morningstar.

I'm joined today by Cliff Hoover. He is a former manager of several Allianz NFJ value funds. He's been with David Dreman's firm for four years, and he's recently become the sole chief investment officer of that firm, in a sense stepping into David Dreman's shoes. David is a longtime value investor. We should mention that David is still at the firm and playing a very significant role, but I think it would be interesting today to talk to Cliff about how that transition is going and talk about a couple of other issues as well.

Cliff, thanks very much for joining us.

Cliff Hoover: Thanks Greg. Thanks a lot.

Carlson: David is known for very distinctive style, a low P/E, very contrarian style.

You practiced essentially the same philosophy at Allianz NFJ. However, there is a twist, right, because David ran very concentrated portfolios and still does. However, you ran more diversified portfolios.

Hoover: Well, that's historically – I do equal-weight portfolios. I like that 50 stock, 2% weight, for example, portfolio. We do equate our small-cap and mid-cap portfolios today.

Just a little nuance, from the original concentrated portfolios, I think going forward you'll see, David and I have discussed it, and I think we'll see portfolios that are still going to have very good upside, just like we've always expected and seen from Dreman, but equal weighting will take some of the volatility, dampen some of the volatility along the way. I think it's kind of the best of both worlds.

I think the products we have today are, I'll call it, good all-weather fighters. They do well. For example, coming out of the bear market, our funds did very well, but we also are going to protect capital in the down markets and have more capital to compound when you come out of those bumpy markets. So all in all, it's a very good solid process, and it should produce a good risk-adjusted returns over time.

Carlson: One thing we talked about earlier, I was little bit concerned with going to a more diversified approach, not necessarily, I thought, get the upside that you would with the more concentrated portfolio with some big positions that David has run, but in '09 at least, that was not the case, right, you put up some pretty big returns in a couple of the funds?

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