Karin Anderson: You get to know every company that you own inside and out, but there are also some themes that you've talked about providing a tailwind to many of the holdings in the fund, and maybe you can elaborate on those a little bit.
W. Whitney George: Well, I mean, there are parts of the market that are going to look like they're more difficult and there are parts that we feel more comfortable with. And we develop a macro view really as a result of talking to dozens of managements every month. So I think we have five to 10 managing teams come through the office, and so you kind of put all of this mosaic together.
I have tended for now most of the decade to be more favorably disposed to hard-asset kinds of players. Those would be the natural resource players.
We have developed a very high conviction level in a number of Canadian energy service companies. We like natural gas as a concept because it's a commodity that's sort of self-correcting. It has three- to five-year cycles, well within our investment cycle.
When gas prices are high, drilling activity and service activity is very high. We find enough of it, prices start to decline and then activity declines and everybody gets depressed. But we know that when drilling activity and service activity reaches a low point, we have a very high decline rate in this country, and it won't take very long before supply becomes tight again and the cycle resumes.
So we are very comfortable investing in these service companies when commodity prices are low because by the very nature of the low activity, we know it's self-correcting, through the business, or that commodity cycle.
So Canadian service companies. Why Canada? It's a natural resource-centric economy. Some of the best--most of the best--new innovations in energy in the last 20 years have actually been developed in Canada before they've spread around to this country and the rest of the world. Whether it's directional drilling or coil tubing or all the things that you hear about, they were developed in Canada.
Canada has higher safety standards, harsher environment, so things have to be designed a little bit tougher. And then on top of that, these companies have a global opportunity that may be a little bit better than a Houston-based company, who will have a more difficult time operating in Russia or parts of the Middle East than the Canadians, who are friends with everybody.
On top of that, if you get a good natural resource kind of environment, the Canadian currency tends to appreciate, so that's worked very well for us. It corrected very sharply last year, so we rededicated ourselves there.
We own some precious metal mining companies. Again, we've been doing a lot of work for 10 years now on this space. It is fraught with all sorts of fraud and promotion. It is a very difficult space to get comfortable with in the short run, but over time, you develop relationships and you get to know managements, and you can find those dozen or so companies that you feel are not only honest about their reserves and their prospects, but reasonable in terms of how they allocate capital.
It's a capital-intensive business, mining, and so last year when capital was unavailable, you can imagine those stocks did very poorly despite the fact that gold prices were going up.
We're now in an environment where you have higher commodity prices, or precious metal prices, and you have energy, labor, steel, all the things that go into building a mine that have moderated, so the fundamentals are much stronger.
And like much of the small-cap universe--the smaller companies are much cheaper than the larger companies and the only way the larger companies can grow is by acquiring the smaller companies.
And as long as you have that valuation discrepancy, they can do so in a creative way that allows for a lot of M&A activity, which is, again, a very big part of the way ultimately in our time horizon we get rewarded for the investments we make.