This value-based asset management company has spawned some of the best performing funds over the past 3 and 5 years, including its small- and mid-cap offerings. The focus is placed largely on proprietary research to pick great companies; research aimed at uncovering companies the market has wrongly undervalued. Year after year, this time-tested methodology of stock picking has proven itself at Hotchkis and Wiley. These managers seem to have perfected their process of selecting companies.

Each fund manager at Hotchkis is supported by an entourage of research analysts ensuring that each company invested in passes their stringent value-based requirements. These requirements include scrupulously examining both quantitative factors (such as earnings figures and ratios, including book value) and qualitative factors (such as tearing apart a company’s business model to see if it’s air tight). An additional factor in the success of Hotchkis is the willingness of its analysts to scour areas of the market that Wall Street or the market in general has temporarily ignored, in the hope of uncovering some investments that turn out to be diamonds in the rough.

Hotchkis’ small- and mid-cap funds are led by three of the best money managers in the business. James Miles, who earned an MBA from UCLA accompanied by a MS from Stanford, co-manages both funds, while David Green, relying partially on his experience and analytical prowess gained as a member of the Goldman Sachs team, helps oversee the small-cap fund. The mid-cap fund is co-managed by Stan Macher. In a November 2003 Smart Money article, Macher described the style of investing at Hotchkis this way: “we’re looking out at long-run earnings power, not the next month or quarter." Later, in a CNBC interview, he reiterated this idea, dismissing the notion of the fund selling a security in less than 6 to 12 months.

This attention to the long-term picture and long-term earnings potential instilled in all managers at Hotchkis separates them from a lot of the other firms. It demonstrates their willingness and patience to hold companies long enough for the market to properly value them.

The performance of this money management team, coupled with its stringent selection process and commitment to original research, makes Hotchkis and Wiley a firm that any astute investor should definitely watch.