Morningstar Advisor - Summer 2007 - (Page 49)

David Scott But visitors shouldn’t be fooled by the lack of glitz. The firm’s unique investment style, stability, and strong track record has led to strong performance and attracted more than $6 billion to Chase’s distinctive growth strategies. Scott is charged with the day-to-day management of the funds. He and Derwood Chase discovered they had a lot in common in 1994 when Scott joined the firm. Both believed in combining quantitative techniques with qualitative fundamental research, both embraced technology, and both were astutely driven to serve their clients. Although Chase Investment Counsel dates back to Derwood Chase’s first client in 1957, the firm’s current culture was locked in place when Scott joined 37 years later. Over the ensuing 13 years, Scott and Chase have worked together to expand the team and adapt to rapidly advancing technology that has made their job easier, but also threatens their edge because data has become more accessible to rivals. Chase is still very much involved in the firm. He comes into the office every day, but he now focuses most of his time on client relationships and Scott oversees the team’s daily investment effort. Chase notes his compulsive tendencies and mentions that he had to fight the urge to do everything himself as the firm grew and as he handed the investment baton off to Scott. However, Chase says, “I never had to reorient David. We were very compatible from the start.” Scott and Chase are on the same page when it comes to an investment philosophy, though they got there in different ways. Chase was greatly influenced by his father, who was one of the first Chartered Investment Counselors in Chicago. Having lived through the Great Depression, Chase’s father was heavily concerned with capital preservation. When describing his inspiration, Scott points to Peter Lynch and Warren Buffett—somewhat How To… Find Strong Firms With Reasonable P/Es David Scott looks for companies that have strong earnings growth and high returns on equity with a reasonable P/E. You can search for similar stocks in Advisor Workstation and Principia. Use the following screen: P/E Ratio Forward 16 10 A+ “I’ll have a Dr. Chase to drink, and please bring out some of those warm wheat rolls,” David Scott says to the waitress as we sit down for lunch with his investment team. We’re at their usual table in a small restaurant across the street from the offices of Chase Investment Counsel in Charlottesville, Va. Puzzled and then curious, I order a Dr. Chase, too. My lunch companions are amused as I take a sip of the drink, which infuses a Diet Coke with a shot of Dr. Pepper. It’s a refreshing mixture, and it’s named after firm founder Derwood Chase. The wheat rolls, which were added to the restaurant’s roster at Chase’s request, are quite good as well. Welcome to the friendly, homespun world of Chase Investment Counsel. Set in the sunny, rolling hills of Charlottesville—also home to the University of Virginia, the CFA Institute, and Jefferson’s Monticello—Chase is small, employee-owned boutique that treats its clients the way it likes to be treated. It has stuck to what it’s good at and avoided the lure of launching new strategies or building a big salesforce to grow assets. And like their quirky blend of Dr. Pepper and Diet Coke, Derwood Chase and Scott have crafted a special concoction for shareholders: a unique mix of quantitative and fundamental analysis. Two Like Minds AND Relative Strength 1 Yr AND Profitability Grade surprising choices for an investor who places so much emphasis on quantitative tools. But Scott says that “successful investors take very objective approaches with no preconceived notions.” And preconceived notions, along with emotions, are exactly what the Chase approach tries to expel. The Investment Version of the Dr. Chase What makes Chase’s approach to investing special is its use of aggressive tools in a conservative way. Scott considers technical stock data such as price momentum, stock purchases by insiders, and unusually high amounts of trading volume. But he also looks at more fundamentally based figures such as returns on equity and debt ratios. The outcome is not gogo aggressive growth portfolios. Rather, they are high-quality, valuation-sensitive, moderate growth funds. “Our quantitative work gets us in the church,” Scott says. “To get in the right pew, we have to use our individual judgment.” He points to examples where the combination of quantitative and qualitative research gave the team confidence to invest with conviction, and ultimately paid off for shareholders. The team latched on to the potential of luxury retailer Coach COH early on. It passed through Chase’s staff of 17 works in humbly appointed office space on the fourth floor of a dated credit union building in the heart of downtown. The office is far from fancy: The air conditioning units make a lot of racket, and some of the ceiling tiles are spotted with water stains. Although the office space could use some renovation (a face lift is planned for later this year, in fact), it adds to the simplicity and charm of Chase, the advisor of Chase Growth CHASX and Chase Mid-Cap Growth CHAMX. MorningstarAdvisor.com 49 http://www.morningstaradvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Summer 2007

Morningstar Advisor - Summer 2007 Contents Letter from the Publisher Get to Know the Bond “All-Stars” Research Briefs Our Stewardship Test Gets Tougher Save It for Later Too Many Oranges Best of Both Worlds No Two Clients Are Alike When It Comes to VAs, It’s Seller Beware Hands On: Finding the Suitable Fund Share Class for Your Client Fund Style Can Drift Off Course Sticking to Their Style, Through Thick and Thin Marathon Man Growth, With a Chaser A Menu of Ideas to Fill Five Market Baskets Funds: Finding Funds with Conviction Stocks: So You Say You Want Income? All Eyes on China Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities What’s New at Morningstar and on the Web The Advisor’s Economic Moat

Morningstar Advisor - Summer 2007

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