PRIMECAP Management Company utilizes a multiple counselor system in which each portfolio manager independently manages a portion of each Fund or institutional client account.
Portfolio managers use only their highest conviction stock selections in their respective portfolios. Diversification is achieved through the aggregation of each portfolio manager's investment positions. Since portfolio managers choose only their highest conviction ideas for their portfolios, sector allocation often differs substantially from that of the S&P 5001. PRIMECAP Management Company believes that this will provide a superior return over the long term, but in any given year, its results can differ materially from the returns of the S&P 500.
Portfolio managers also provide leadership in the research effort for particular stocks and industry groups. In this regard, the firm's portfolio managers perform in an industry group specialist role similar to that of its financial analysts. To the extent that an individual portfolio manager or financial analyst convinces others of the merits of a particular investment idea, the firm's weighting in that idea may become significant due to the collective ownership by multiple portfolio managers. Historically, this cross-pollination of ideas has led to a fairly concentrated portfolio. The top ten positions typically represent more than 25 percent of the assets in each Fund or institutional client account.
Although PRIMECAP Management Company places a strong emphasis on individual decision-making, its investment professionals do not work in isolation. Portfolio managers and financial analysts benefit from a high degree of interaction, including daily meetings in which they discuss portfolio-related news and information, observations from recent research trips, and investment ideas. In addition, the firm conducts weekly research meetings during which industry updates and investment ideas can be presented and discussed. Each investment professional is a member of the Investment Team, which maintains an "Action List" in which all companies owned in the portfolio are rated "buy", "hold", or "sell". Individual portfolio managers or financial analysts may propose a change or addition to the Action List at any time.
Diversification does not assure a profit or protect against loss in a declining market.
1The S&P 500 is a market capitalization-weighted index of 500 large-capitalization stocks commonly used to represent the U.S. equity market. You cannot invest directly in an index.