"Investors Will Gravitate Toward Quality"

At this fund, only strong business models need apply

Glen Bickerstaff of TCW Galileo Select Equity Fund tries to find the strongest companies in growing sectors and hangs on to them. That strategy has paid off in this year's market turmoil, with the $441 million no-load fund remaining nicely above water. Bickerstaff attributes this buoyancy to the solid business models of the companies he owns. Bickerstaff, based in Los Angeles, spoke recently with Jane Sandiford of S&P FundAdvisor. You can find a longer version of the interview at www.personalwealth.com.

Q: How have you managed to weather the stock market's recent volatility?

A: I would highlight the quality of the companies we own. Our principal criterion in selecting stocks is a sustainable business model. As investor psychology, which turned negative late in the first quarter, shifts back to at least neutral, investors will gravitate toward quality.

Q: How do you attempt to control risk?

A: We try to find the best 30 companies, roughly, and own them for the long term. Turnover is about 25% a year. I view risk as the chance that we'll have a negative outcome. That is best controlled by owning assets that, over the long term, shouldn't have negative outcomes because their business models are so powerful.

Q: You have a large position in Dell Computer.

A: It's 7.3% of the portfolio. I've owned it for more than five years. I still believe it's one of the best businesses in America. They have taken a lot of market share in desktops and in portable PCs. Now, as they move up toward servers and even storage products, they will continue to take dramatic market share with their substantial cost-structure advantages and distribution skills.

Q: What sectors do you find promising?

A: The predominant change taking place in the economy is the proliferation of technology. We have about a third of the portfolio in technology. Other areas we find interesting are financial services, excluding banks, and health care.

Q: You own Kansas City Southern Industries, Janus Capital's parent.

A: Janus Capital clearly dominates the results of that company, and we think that's a very substantial franchise.

Q: What about Janus' desire to be spun off separately from K.C. Southern's other financial-services holdings?

A: There's far too much at stake for this to be resolved in a way that doesn't benefit shareholders. We also own Charles Schwab. We've recently added Progressive, a property-and-casualty insurer that has had some difficult earnings reports. But I believe they have solved what was a short-term pricing issue.

Q: What sectors do you avoid?

A: You won't see a lot of commodity-related companies in the fund. The lifeblood of long-term success is being able to differentiate your products and cost structure. That's difficult to do in commodity-related businesses.

Q: What did you buy in the recent downdraft?

A: Southwest Airlines, which, for a short period, was a victim of higher energy prices. We like their business model, and the spike in energy prices gave us the chance to buy the stock very attractively. We don't believe energy prices will stay high for long. We also bought Wal-Mart, which is well-positioned for what we call long-term distribution of goods to consumers. Some of that is going to be through their stores, and some is going to be in a more direct channel using the Internet. They have the backstage assets in place--the distribution centers.

Q: How about health-care plays?

A: We added to Pfizer earlier this year, and in biotechnology, we've added to Amgen and Biogen.

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