Diamond Hill Investment Partners has had quite a year, surpassing the $1 billion mark of assets under management in February and hitting $2.18 billion by the end of the first quarter -- a 221 percent increase over the previous year period. Also, last December, the now six-year-old firm launched a Small-Mid Cap Fund to take up where its newly closed Small Cap Fund left off. Chris Welch, formerly of Fiduciary Trust Company International and Nationwide Insurance's mutual fund unit, was brought on board to manage the new offering, and talked with the MFWire last week about Diamond Hill's rising star.

"Generally we don't have an opinion on what's going to happen in the next month or quarter," said Welch, explaining why Diamond Hill's investors should be in it for the fairly long-term. "We model companies over a five-year time horizon."

So far, that time frame seems to be on-target. Diamond Hill was founded in 2000 by current president and CIO Ric Dillon, Welch related, as a publicly-traded company formed around The Bank Stock Group, an existing bank brokerage firm with excess capital. Dillon seized on the "unprecedented" overvaluation of large-caps at the time, and as Diamond Hill's first stocks cleared the three- and five-year marks, Morningstar ratings glowed. In the last two or three years, he said, funds launched in 2000 "got on a lot of people's radar screens."

The apparent result is stellar inflows and the firm's first profitable year in 2005. But Welch maintains Diamond Hill has not altered its slow-and-steady strategy, nor will it. "Our goal is to be in the top quartile of peer funds over five-year periods," he said. Changing with the times, the Long-Short Fund and Select Fund are now invested "heavily" on the large-cap side.

Asked about next steps for Diamond Hill, Welch said one natural possibility would be to go international. However, for a company that considers strong relationships between staff members a key strength, the idea of a leap abroad gives pause. Welch pointed out that he, for example, developed ties with his future Diamond Hill colleagues while employed at Nationwide, and that betting on overseas investments would require adequate familiarity with outside managers.

So far, the Small-Mid Cap Fund that is his particular charge is showing healthy growth -- having risen from $300,000 to $7 million since the beginning of the year -- but is holding a cash position that, at 25-30 percent is larger than its eventual 20 percent target.

Welch and Diamond Hill will give it time. "We really make an effort to remind people of volatility," he said, underscoring a key mantra: "Invest at a discount; achieve a margin of safety."

 

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