Q&A with Jim Gendelman 2006

Sub-advisor to the Masters’ Select International Fund

The opinions and conclusions expressed herein are those of Litman/Gregory Fund Advisors, LLC and Jim Gendelman at the time the material is written and may not be reflective of current conditions.

Jim Gendelman is the portfolio manager for the portion of the fund’s assets allocated to Marsico Capital Management, LLC (“Marsico”). Gendelman has been in the investment business since 1987, and has served as the international equities portfolio manager and a senior analyst of Marsico since May 2000. Prior to joining Marsico, Gendelman spent 13 years as a Vice President of International Sales for Goldman, Sachs & Co. He holds a bachelor’s degree in Accounting from Michigan State University and a MBA in Finance from the University of Chicago. Gendelman was a certified public accountant from Ernst & Young from 1983 to 1985.

What first attracted you to the investment business?

Several of my family members have experience in the investment business. My father was a stockbroker and my brother has a career in investment management. With my background as a certified public accountant and my experience as a MBA student at the University of Chicago, it was only a matter of time before I found my way to the investment industry.

How did your investment philosophy develop?

Tom Marsico, founder and Chief Investment Officer of Marsico, developed the firm’s investment philosophy. He has employed the same investment philosophy during his more than 20 years experience in investment management.

I believe Marsico’s investment strategy is unique. We don't use Wall Street research or computer screens to find ideas for the portfolio. Instead, we conduct rigorous, creative, hands-on fundamental research blending top-down macroeconomic analysis with bottom-up stock selection.

Can you briefly discuss the key elements of your stock picking discipline?

Our stock selection process focuses on industries and companies experiencing positive fundamental change. Some of the questions we ask in evaluating companies include: Are they the world-class leader in the products that we're trying to analyze? Are their products the best? Are their services unique?

We look for companies with qualities such as specific market expertise/dominance, strong brand franchises, above-average unit growth, strong free cash flow, extensive research and development and marketing resources, and excellent management teams.

What factors have been most important to your success?

I believe the hands-on, proprietary research both “top-down” (i.e., macroeconomic) and “bottom-up” (i.e., stock selection) conducted by the Marsico investment team has been very instrumental to the success of the international portfolios. A second factor is Marsico’s willingness to be “different” than benchmark indexes. The strategy emphasizes investments in our best ideas. Substantial divergences from benchmark indexes in terms of sector, country and industry allocations can be commonplace. We believe that value-added stems from finding good investments, not from being “benchmark-centric.”

How do you and your team work together and how do the research efforts of the team contribute to the portfolio you run for Masters’ Select?

Marsico’s entire investment team meets regularly to discuss the macroeconomic environment and the companies in our investment universe.

The entire investment team at Marsico develops and maintains customized, comprehensive earnings and cash flow models (varying in complexity and detail) for companies of interest. These models “decompose” a company product-by-product and division-by-division in order to gain as complete an understanding as possible of a stock’s leverage points. The models include a variety of fundamentally driven investment considerations: valuation, expected growth rate, profit margins, sales growth, etc. Models are reviewed on an ongoing basis and may be adjusted for different market conditions.

As you and your team research companies, what are the most important sources of information?

New research ideas are sourced through a variety of means including macroeconomic data, industry analysis, trade journals, conferences and newspapers.

We are strong believers in meeting with company management teams; this is a major part of what we call “hypothesis testing” of our investment thesis. We travel globally to gain more insight into the companies in our universe. In addition, as another part of our hypothesis testing, an analysis of a company’s major competitors, suppliers, distributors and other constituencies is frequently undertaken.

How does running a very concentrated portfolio that is part of a diversified fund differ from running a more broadly diversified portfolio? How do you choose the 8 to 15 stocks you hold for Masters’ Select from your more diversified portfolios?

In managing the Masters’ Select portfolio, I am able to concentrate solely on investing in my highest conviction investment ideas. This allows our team to focus on the best companies with unique business models that should provide the best returns over a long period of time.

The fund invests in foreign securities, which exposes investors to economic, political and market risks and fluctuations in foreign currencies.

Neither the information contained herein or the opinions expressed shall be construed as an offer to sell or a solicitation to buy any securities mentioned herein. Click here to view the most recent portfolio holdings of the fund.

To obtain a current prospectus for the Masters’ Select Funds at no charge, please click here or call 1-800-960-0188. The prospectus contains more complete information with respect to the risks, costs and expenses of investing in the Funds. Please read it carefully before investing.

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