DHIL - NASDAQ

Welcome to the Diamond Hill Third Quarter 2014 Portfolio Manager Conference Call. My name is Allen and I will be your operator for today’s call. (Operator instructions) Please note that this conference is being recorded. I will now turn the call over to Julie McConnell. Ms. McConnell, you may begin.

Great. Thank you, Allen. Good afternoon everyone, and welcome to the Diamond Hill third quarter portfolio manager conference call. Certainly appreciate you joining us today. Like Allen mentioned, my name is Julie McConnell, and I will be moderating this afternoon’s call. We will start our call today by reviewing third quarter firm update. Following the firm updates, we will hear from Igor Golalic who is one of our healthcare sector research analysts. Some of you may have seen our most recently published industry perspectives piece that was written by Igor. In that piece Igor wrote about Alere which is a global diagnostics company and today Igor is going to talk about the opportunities available to unlock Alere’s potential and create long term value. After Igor’s comments, our portfolio managers will review third quarter results for each strategy and we will then open up the call for a Q&A session. When we’re ready to go to the Q&A session, the operator will provide instructions if you would like to ask a question over the phone. And you also can type a question on your screen at any time throughout the call. As always, there are a few important compliance statements to go over before we begin. The opinions expressed by portfolio managers are their own, and are subject to change at any time as circumstances change. Any discussion of specific portfolio holdings will be as of September 30. Portfolio holdings are subject to change without notice. And finally, a complete list of portfolio holdings as of September 30 is available on our website. The next slide provides additional important disclosures and we would just ask that you review this at your convenience. Moving on to Slide 5, and the firm update. We continued to add depth to our research team during the third quarter. Grady Burkett was promoted from Research Associate to Research Analyst. Grady is a member of the information technology and telecom services team and he will assume [inaudible] in the research opportunity fund in the first quarter of next year. In addition, Varun Gupta joined Diamond Hill as a research associate and like Grady, Varun is also a member of the information technology and telecom services team. We’re also pleased to announce that Craig Tann joined our business development team in July. Craig will be responsible for developing and maintaining key account relationships and prior to joining us here at Diamond Hill, Craig served as National Accounts, Vice President at BlackRock. I am now going to hand the call over to Chris Welch who will review some additional firm updates. Specifically Chris is going to discuss some recently announced update to the portfolio management team for some of our strategies. Chris?

Thanks, Julie. Yeah, periodically we review our strategy assignments and the most recent review resulted in a few changes. So I will just go through them in the order that they are shown on the slide here. For the strategic income strategy, we added John McClain as a co-portfolio manager and Austin Hawley is coming off of the strategy. John joined the firm early in the year as a credit analyst. He has a lot of experience in the asset class and he has already made significant contributions to the strategic income strategy. Austin will continue to support the strategy to his work as an insurance analyst. On the financial long-short funds, Austin Hawly and John Loesch were promoted from assistant portfolio manager to portfolio manager roles. This is essentially formalizing the significant roles that they've already been playing with that sector-based strategy. And on the long short strategy, Chuck Bath is moving to assistant portfolio manager from co-portfolio manager role. This reflects the increased focus on the large cap strategy as that strategy has grown significantly in recent years, he will continue to support the long short strategy through his focus on large cap stocks. And then finally, in the large cap strategy, Austin Hawly has replaced Rick Snowdon as assistant portfolio manager there. A couple of factors here. It diversifies our research focus on that team as both Rick Snowdon and myself as the other assistant portfolio manager, both Rick and myself focus more on technology stocks and Austin works with his financial team and then also this move enhances our eventual succession plan as Austin is about a decade younger than both Rick and myself. So we will be glad to take any questions about those updates in the Q&A session at the end of the call but for now I'll turn it back to Julie.

Great. Thank you for that overview, Chris. So now moving on, I will turn the call to Igor. Again he will share his thoughts on Alere. Igor?

Okay, thank you Julie. I’m going to talk today a little bit about Alere which is a global diagnostics company that’s held across our portfolios. This is a company with $3 billion in market cap, $3 billion in sales, EBITDA about $600 million. They address the chronic care needs with their portfolio of rapid testing, point of care diagnostics products. Things like cardiovascular diseases, heart failure, cardiac arrest, they have products for metabolic disorders, infectious diseases, respiratory diseases, women’s health and drugs of abuse among other things. The company has a broad distribution platform and network with about two-thirds of their sales in the United States, 20% in Europe and the rest in emerging markets. They sell primarily to hospitals and other healthcare providers but they also make products for home use and have a certain original equipment manufacture arrangements as well. They sell in 36 countries around the world and their products are available in about more than 100 countries around the world. Just a little bit of a background on the company. It was formed in 2001 when Johnson & Johnson acquired what was then called Inverness Medical, mainly taking the diabetes portfolio and leaving the rest of it to the shareholders spinning it off primarily clinical diagnostics and women’s health portfolio. Management then executed an aggressive M&A strategy which really intensified since 2006, adding about $2.5 billion in sales and settling the company with $2.5 billion in debt and $2.5 billion in incremental goodwill. This is an aggressive M&A strategy towards so called connected health initiative where the company wanted to combine diagnostic capabilities with data collection, interpretation and analysis to basically help healthcare providers improve clinical outcomes. Now coincidentally, this really dovetailed well with the healthcare reform and the formation of so called Accountable Care Organizations which were primarily interested in improving healthcare outcomes. So longer term picture for Alere and the outcome of their strategies started to look pretty good. However the company had a limited success in executing these connected health contracts, primarily due to lack of scale and some structural advantages. Then CEO, Ron

Thank you, Igor. We will now begin the strategy update portion of the call, and Tom Schindler will get us started with an update on the small cap strategy.

Thanks, Julie. The Diamond Hill Small Cap Fund Class I was down 5.86% in the third quarter compared to the Russell 2000 which was down 7.36%. Year-to-date performance through three quarters is about positive 2% versus a negative 4.4% for the index. Thus far in October, both the funds and index have weakened further putting the fund in negative territory now and the Russell 2000 deeper in negative territory of more than 1000 basis points behind the Russell 1000 index. My summary comment on the quarter would be that significant cash balance on the fund allowed the outperformance in a down quarter while stock selection fairly neutral. This contrasts to calendar year 2013 and the first half of 2014 when stock selection was good, allowing for outperformance relative to the index by the similarly positioned portfolio at positive market return environment. Also while the funds skews higher in its median and weighted average market cap to the index, this did not materially benefit fund performance as some of the longer held energy stocks are also some of the higher market caps and those were down in the quarter more than the index. The weakest performing sector in the third quarter was energy. The fund’s weight in the sector is more than twice the index. However looking at energy and materials combined, two sectors that share some similar characteristics the fund’s allocation is very similar to the index. The [inaudible] contracts for WTI oil ended the second quarter at 105 and the third quarter at 91, a 13% decline, and that has further weakened in October to below $82 a barrel, another 10% drop. Declines for Brent crude were slightly greater. The shape of the futures curve has shifted such that longer dated futures out to 2019 if one puts much stock in those are now higher than the front month contracts so that haven’t declined as much. There is some justification for the weak oil prices as slowing worldwide economic growth particularly in China and Europe glide with increased production from US shale oil. Also the market has received a shift in the stance of some OPEC members notably Saudi Arabia accepting lower oil prices rather than reducing production in an attempt to support prices. And looking at some of the individual companies owned in the portfolio, any changes thus far to estimates of intrinsic value are a result of changes in price realizations from changes in the commodity prices. Well economics did actually improve in areas like the Permian Basin, MidCon, and Bakken, these companies continue to experiment with well-designs that have generally included drilling longer laterals, increasing the number of fracing stages, utilizing more sand when fracking a well and deploying other technology like steerable drives. Net results have generally been increased expected ultimate recoveries and decreased well costs as the time to drill has decreased enough to offset the higher costs that go along with greater frac-stages and higher sand usage. This is true for operators like Cimarex in the Permian and MidContinent and Whiting in the Bakken. So in an attempt to address whether there is opportunity in the energy area given that stocks have sold out materially, the answer is a qualified yes. Further loosening in worldwide supply demand fundamentals in oil could have enough of an impact to offset these other positive developments in well economics, somewhat akin to what occurred in U.S. natural gas markets as production growth in various shales has lowered natural gas prices. $80 oil still offers reasonably attractive economic scenarios like the Permian. Lastly, cost structures for labor and oil service may flex downward in a lower oil price environment. So “breakeven prices” can be a moving target. Looking at new positions post holdings was initiated in the quarter. The fund held a profitable position in Ralcorp several years back. Ralcorp spun off post to shareholders and remainder of Ralcorp was subsequently acquired by ConAgra. Post has that diversified greatly over the past years from the cereal business by acquiring among other things Michael Foods, Dakota Growers and Dymatize. Bill Stiritz who has a long-term track record remains as chairman of post holdings. The price has come down a lot over some challenge near-term fundamentals but it appears a reasonable expected return from this price. Other meaningful additions to existing positions included Aircastle and Live Nation. Liquidity Services was eliminated after poorly developing fundamentals. Other positions that were reduced included Aarons, Avis Budget and XPO Logistics. With that, I will turn it back to Julie.

Great. Thank you, Tom. Now we will turn to Chris Welch for comment on the small mid cap and mid-cap strategy results.

Thanks, Julie. The small mid-cap strategy slightly trailed the Russell 2500 Index benchmark in the third quarter, it’s modestly ahead year to date and since inception. In the third quarter, the drivers of relative trailing behind the benchmark were stock selection in consumer staples, healthcare and industrial sectors that all trailed benchmark returns and the cash provided some cushion high single-digit cash, [indiscernible] results. Looking at the sector weightings, major change on a year-over-year basis is the increase in the financial sector weight up to 29.5%, that's nearly at the 30% upper limits of sector weights. So we are finding a lot of opportunities in financials and that increase in financials over the past 12 months was generally funded from decreases in the weights of industrial and healthcare sectors most of which was tied to the sales of individual stocks such as Southwest Airlines and Forest Labs. Looking at – well I guess first it was mentioned turnover for the portfolio is 30% over the trailing 12 months and over the past five or six months it's been annualizing about half that rate, so not a lot of activity in the last couple of quarters. In terms of new stocks, Goodyear Tire & Rubber added that to the portfolio in the third quarter. Goodyear over time has focused their business more on higher value-add tires versus more of the commodity low end portion of the business. 70% of their units are replacement tires and they will get the benefit of the increasing auto sales in North America and Europe and in their other markets that we’ve seen in the past few years as the replacement market will kick in as those new vehicles age. And then in terms of balance sheet, they recently fully funded their pension. So they are in better shape there and they have committed to paying down more debt, so improving the balance sheet. The recent cyclical decline in the market as well as some short-term concerns following their most recent quarter about commercial tire volumes gave us the opportunity to add that to the portfolio. On the sell side, the Southwest Airlines is just a few shares left over there that we’re waiting to turn long-term to get to lower tax rate on and then the ConAgra and Quest Diagnostics both are trading around their intrinsic value estimates and both has had some disappointments in fundamentals in recent quarters. So we eliminate those from the portfolio. Moving on to the mid-cap fund. The results trailed the benchmark in the third quarter and since the inception, which is the beginning of this year, similar drivers to investment results as the mid strategy, so we will go into detail there, looking at sector weightings, there has only been modest changes in sector weightings on a year-to-date basis. Cash is around 7%, slightly lower than this mid strategy, the higher end of the market cap with mid-cap universe gives us a few more opportunities there. And then finally on the new and eliminations, V.F. Corp was added to the portfolio in the third quarter. It's one of the larger market cap stock in the mid-cap universe and it is something that’s owned in a number of other Diamond Hill strategies, and then we sold all of our KeyCorp holdings. We had a very small position there. We thought SunTrust offered better opportunities. So we used most of the proceeds to increase our existing SunTrust Bank position. So with that, I will turn it back to Julie.

Great. Thank you, Chris. Next, Chuck Bath will provide comments on the large cap strategy.

Thank you, Julie. In the third quarter, the large cap strategy is down 1.14% versus the positive 65 basis points for the index and year-to-date up 4.82 versus 7.97. In the quarter, the performance is somewhat interesting. We started to see the early signs of cyclical sectors of the portfolio, beginning to come under stress particularly in the industrial sector of the portfolio. United Technologies which is a large holding – they might feel a very positive toward, nonetheless, a particular important in the quarter as there were signs of international slowdown in its end markets. So the industrial sector was a bit of a disappointment. On the positive side, some of the financial services names which were a bit controversial in the first quarter this year, names like Citigroup, Morgan Stanley, J.P. Morgan started to perform better, especially Citigroup and that was a bit gratifying because our thesis continued to play out in those even as they came under stress in the first quarter of this year. The financials remain the largest sector in the portfolio by far, others including healthcare and industrials are large weightings. Consumer staples have – at the start of the year a larger weighting, has become a slightly smaller weighting in the portfolio but the financials at 26% are much larger as a sector than any -- even our healthcare at 14. Energy, which is a bit of a controversial topic and it is we’re often asked about is about 11% of the portfolio, not too much out of alignment with the index at 9%. Our exposure there is mostly in the E&P holdings, and we feel that those are the scarce assets, the ones that Tom was referring to a little bit -- similar types of ideas in terms of major exposure in the oil shales areas of the United States, the Bakken and the Permian and we feel that those companies should be able to continue to grow production in a lower oil price environment, although perhaps not as rapid rate as it was the past. But the stock price decline has been significant enough to make those sales and meaningful – and we still feel there’s good opportunity for the portfolio. In terms of the portfolio statistics, nothing too much stands out, the 17% portfolio turnover that's pretty normal for me. The medium market capitalization is towards the larger end of the universe. And in terms of new positions, Stryker is a healthcare company, high quality name which we followed in the past, its valuation has become more attractive in the sell-off and we’ve established a position there, we started to establish position there. And Goodyear which Chris Welch also mentioned is in the mid-cap, it's also in the large cap strategy. The entire auto and auto related sectors of the market have gotten hit very hard. This stood out as particularly inexpensive security and a name we want to put in the portfolio due to its cheap valuation. There was some sign of a slowdown in their offroad, their tire business and their core consumer and industrial tire business remains quite strong. [Indiscernible] Air Products, that was a name we sold to raise the proceeds to purchase the Praxair position and then General Mills which is a company we’ve known for a while and we’re seeing continued concerns and deterioration in topline fundamentals as both their read to eat cereal business and their yogurt business which are both very important end markets for them have come under secular pressure and quite frankly sale of General Mills was done in order to raise the cash to fund purchases in more attractive names such a Stryker and Goodyear. That concludes my comments and I will turn it back to Julie.

Thank you, Chuck. Next, we will hear from Austin Hawley with comments on our select strategy.

Thanks Julie. For the third quarter, the Select Fund was down 1.7% compared to the Russell 3000 benchmark which was essentially flat for the quarter. For security selection within healthcare and financials were two of the larger drivers of under performance. These two sectors were notable outperformers throughout 2013. Looking at sector allocations for the strategy, the most significant change over the past 12 months has been the increase in consumer discretionary which now represents a little over 15% of the portfolio. This sector has increased as we have added significant new positions during the year in Whirlpool and Fox, 20% for Fox. Looking at portfolio statistics, what’s notable is the lack of activity during the quarter. We only had one new position added which was Alere which Igor spoke about earlier in the call, and two eliminated positions. Dover was eliminated from the strategy as it reached our estimate of intrinsic value or became – came very close to our estimate of intrinsic value. And the Glaxo was eliminated from the portfolio due to concerns over weakening fundamentals, in particular in the respiratory franchise which we had expected to perform well over time. And with that, I'll turn it back to Julie.

Great. Thanks, Austin. Next, Ric Dillon, portfolio manager for our long short strategy, will provide an update on recent developments.

Thank you, Julie. As always, the goal of our long-short strategy over the long haul is to LIBOR [ph] long only benchmark which is difficult to do in a stray-out market like we have experienced most of the last five years, clearly over the last month when the market had sold off, that would be a period where the shorts really helped considerably. But what's interesting about this quarter and this year is that the shorts have actually made a positive contribution through September 30, even while the market is up during that period, and of course what I have just said is even more so with the recent sell-off. So I want to talk about just a few names that are in the strategy as of September 30 that illustrate what I'm talking about. The first is Ubiquiti Networks, which is a position that probably was referenced also a couple of quarters ago because -- two quarters ago it also was a good performer for us and we cover that position only to see the stock trade right back to where we had initially put the short position on. Grady Burkett, who you heard mentioned earlier believes and certainly so far it seems if he is correct, the market is now saying that that margin pressure is to be expected much greater than what was believed at the time we put the short position on and when the stock sold off considerably both times after doing so. So that was an important contributor. Another important contributor in the third quarter was Sadavis [ph] and it’s a company that is going through some competitive -- greater competitive forces and pressures which [Jenny Hubert], our analyst there, strongly believes will affect their profitability. And once again over the short term and again this is through September 30, the stock sold off considerably and so that too was a big contributor in the quarter on the short side. Finally, Bank South is a bank franchise that is – they have a specialty I guess, it would be the mortgage lending but it’s our view, [John Less] who is the analyst there that, that business is probably slowing, costs have been rising and so he does not think that the stock represents an attractive on the long side but just the opposite on the short side. And it too was down I think approximately 15% in the quarter. And so those are all examples of companies where our analysts have done excellent work in differing or disagreeing I should say with the consensus what’s embedded in the stock price when we put the short positions on. Now all three are relatively good examples of the kind we like and clearly we don't always get their might. What’s important to note is that most markets aren’t going to be like the past five years, the last month notwithstanding straight up but instead we will have periods that are difficult to forecast over the short period that, having the short positions when you run into tough periods, they certainly can help considerably. Even in this month, Gap Stores which you read about a couple months ago that Todd Snyder wrote about and some of the challenge that they faced, those came to fore just in the past week, and that stock too has sold off this month. So I just want to say that it is perhaps in a sort of perverse way, it’s good that the straight up market has finally seemingly ended and I think we’re down -- the market is down almost 10% peak to trough in the last month and straight up is not what we should expect and we never know what the path is going to be over the next five years. You’ve heard us talk about being relatively cautious. I will say that if you think about a 10% correction over the short period of time that’s almost as if saying you're adding two percentage points per year over the next five year expected return. Chuck this morning in our daily meeting pointed out that the dividend yield on the S&P 500 is once again higher than the 10-year treasury which is an unusual experience. And so perhaps over the next five years from these reduced levels, including today as well as you might be back into the mid single digits or even slightly above that which given that the 10 year is around 2% and the 30 year is around 3%, that probably makes for a very attractive yield return comparison. So that will be it for now and I will turn it back to Julie.

Thanks, Ric. Next, we will hear from Chris Bingaman with a review of our financial long short strategy.

Thanks, Julie. The financial fund was down 1.6% in the quarter versus up 1.34 for the S&P 1500 financials. Maybe not surprisingly the fund has been positioned this way for quite a period of time with the key emphasis on the banking industry, insurance space and very underweight REIT sort of environment like we had in Q3 and really all of 2014 where yields are coming back down, the curve is flattening a bit and again of course no movement in show rates, our REITs have acted fairly well and the areas that are little bit more leverage to rising rates have lagged and struggled a bit. In general in the last quarter, the fund got a little bit more net long, it’s even more or so real time but at quarter end it was – the net position was up 79% I think that compared to 77% at the end of Q2. So again some of the key contributors during the year to date period were some of the larger cap names that are a little bit more high quality, little bit more defensive, Wells Fargo, PNC, AIG, have been a contributor year to date as well as wins of a small REIT that we did have that announce they are liquidating. On the other side many of the smaller cap names, some of the alternate managers, Fortress, American Equity, First Niagara have been the laggards and sort of a drag on performance. New positions, only one on – and it was a short RenaissanceRe which is identified by the insurance analyst here expecting continued pricing pressure as new capital has flooded into that area after a period of -- benign period of catastrophe experience over the last couple of year or so. Expecting continued capital attraction and margin pressure there. On the eliminated side, we did eliminate three long positions, Bank of New York, Key and Reinsurance Group of America, all those have worked reasonably well on the portfolio and were eliminated as their prices approached our estimate of IV, on the short IV, did also eliminate Home BancShares which has been a good contributor during the year of 2014. So in general still sort of a mixed environment I would say overall for our sector, or for the financial sector in the way we are positioned in general. Again a lot of exposure to banks, insurance companies, the yield curve is not exactly conducive. There are some other tailwinds in those industries and valuations in general are still fairly undemanding but of course even more so in the last month. So I think I will just leave it there and turn it back to Julie.

Great. Thank you Chris. Next, Rick Snowdon will provide an update on the research opportunity strategy.

Okay, thanks Julie. The Diamond Hill Research Opportunities Fund was down roughly 300 basis points on the quarter whereas the index was roughly flat. This underperformances is largely attributable to poor stock selection in consumer staples, financials and industrials. So the three biggest offenders there were Post Popular, [indiscernible] and Hub Group intermodal company. Hub Group in particular is facing some difficulty with congestion on the rail lines and that’s being attributed to a lot of increased traffic and -- increased to very slow traffic due to all the fracing, well exploration going on in this country as well as shipping that well by rail, once it's extracted. Losses were somewhat offset by good performance in energy due to an underweight allocation and in consumer discretionary due to stock selection. On the short side, tech financials and consumer discretionary all helped a bit. Tech was the biggest contributor there on the short side with Ubiquiti which Rick mentioned earlier being down over 15% in the quarter. On the sector allocation page, you can see the cash decreased to 10% from 17% a year ago. This was due mostly to roughly 300 basis point increases in tech healthcare and consumer discretionary offset by some minor decreases in the consumer staples and financials. Financials remains our highest sector weight. The following page shows some portfolio statistics and the new and eliminated names for the quarter. Net exposure is up 6 points to 78%. I would also mention that we recently introduced some minor modifications to the internal processes for the Research Opportunities Fund, with the intent of allowing greater concentration in our best ideas as well as better utilization of our gross exposure capacity. And we are pleased to see this playing out, with gross exposure being up approximately 10 points from a quarter ago just from the low 90s to low 100s. Concentration in our top 10 names increasing from 28% to 33% and concentration in our top 20 names increasing from 45% to 52%, so we’re pleased about that. In terms of eliminated names, Aaron’s was eliminated as it reached or approached intrinsic value and Corrections Corp. was sold for more attractive idea. In terms of new names, I think you’ve heard about most of these - Goodyear and Stryker both on the long side, RenRe and Celgene both on the short side. Celgene is a biopharmaceutical company which makes cancer and inflammation related drugs. As the company has grown very nicely over the past several years, but our analyst on this name which is Igor who you actually heard from a few minutes ago, believes the current valuation is far too optimistic pricing and roughly 25% EPS growth per year over the next five years. He thinks this is highly unlikely to occur as some of their key drugs face patent issues in the near future and all the promising he believes the pipeline is far from slam dunk given both efficacy uncertainties and an increasingly competitive landscape. And with that, I will turn it back to you, Julie.

Great. Thank you, Rick. And to wrap up our portfolio manager update, we will hear from Bill

Thanks Julie. Our objectives are to generate the total return of inflation plus three percentage points and 7% nominal, each measured over rolling five-year periods. Looking back one year on the iShare, our total return was 4.24%, so slightly below that inflation plus 3 percentage points but pretty close to it. Looking back three years, 6.8% annualized, and looking back five years, 8% annualized. So over the last 3 to 5 years we’ve been closer to and above that 7% nominal objectives. Looking forward we’re focused on inflation plus 3% while yields are higher in the high yield universe and in our portfolio as a result of the weak third quarter. Risk consideration still have us focused on that inflation plus 3% objective going forward. If you turn to page 49, now we show this each quarter because we don't manage against any index, and we don't fit into any category, it is important to evaluate our returns on a risk-adjusted basis. So we show this to you each quarter which allows you to compare our Sharpe Ratio against the Sharpe Ratio of a Morningstar Intermediate Term Bond category, high yield bond category and Multisector Bond category. Skip page 50 and go to page 51, we were positioned defensively coming into the third quarter as we expected volatility to pick up and liquidity to come out of the market as we got closer to the end of quantitative easing in the beginning of the first rate hike. We’re definitely days away from the end of quantitative easing although there is lots of debate right now about when that first rate hike might take place. We think that the pickup in significant increase in volatility and liquidity coming out of the market is probably somewhat related to the fact that the Fed should be done with quantitative easing this month. And then – so we were well prepared for the sell-off in the high-yield market and then we were flexible and nimble enough to take advantage of that selloff. At the end of the third quarter, 25% of our portfolio was new as compared to the beginning of the quarter. We sold 11% of our position in investment grade corporate bonds and purchased 23% in new high-yield bonds. At this stage of the credit cycle it is appropriate for the market to try to sort out those companies and industries that will run into problems when that high-yield credit cycle turns. This is an ideal environment for our defensive high-yield position and also it's a great environment to start building positions in higher-yielding bonds that we feel have been unfairly categorized as bonds that are more likely to run into problems when the cycle turns. During the quarter, the fund declined 84 basis points but our yield-to-worst increased 185 basis points. In contrast, the Bank of America Merrill Lynch US High-Yield Index declined 192 basis points and its yield to worst only increased 113 basis points. So obviously that's over a very short three months time period but that’s one measure of how much we accomplished in our view in the third quarter. And then finally I just want to look at slide 52. We have a conference call tomorrow where John McClain who will become a co-portfolio manager as of February and I are hosting an in-depth conference on the strategy and here is down, the information, it's 4:14 tomorrow afternoon. Thanks a lot. With that, I will turn it back to Julie.

Great. Thank you. Bill. So that concludes our prepared remarks this afternoon. So Allen, we are now ready to begin the question-and-answer segment of the call.

(Operator Instructions)

While we wait to see if there are any questions from participants, we did receive one in advance through the web for Chuck Bath. Chuck, does your move to assistant PM on long short have anything to do with potential retirement plan?

Thanks, Julie. No, I have been asked – I am 59 years old, [inaudible] I think most of them approach 60 but my hope is to continue working for years to come. I'm here because I enjoy what I'm doing. I love investing and I hope to be able to do this for many more years. So no, the changes have more to do with the growing demands on the strategy, as they become larger and really did not reflect in any way sort of change in my career plans as I'm hopeful to be working for several more years.

Great. Thank you, Chuck. Allen, do we have any questions in the queue?

We have no questions at this time.

Okay. We do have another question here for Chris Bingaman. Chris, how much difference is there between the long side of the long short fund and the large cap fund?

Thanks, Julie. There is quite a bit of overlap, there has been for a number of years, obviously just involved in both strategies. So again there has been lots of overlap. I would expect that overlap to continue to maybe a slightly lesser degree going forward as we’ve mentioned over the last couple of years. We like to have the flexibility to go down in the market cap spectrum when there is opportunity there. We haven't sensed a lot of opportunity over the last couple of years. We’ve actually found more value up the cap spectrum. So in the environment like we've seen in the last month though where small caps are under pressure would be an example of a time where some of those might be getting a little bit more attractive. So I would expect to be able to utilize the market cap spectrum down to our lower limit of $2.5 billion dollars. So again lots of overlap but maybe a little bit less so going forward. And I think also maybe the portfolio could be slightly more concentrated than it’s been in the past as we find more attractive names down the cap spectrum and just focusing on our best opportunities.

Allen, are there any questions at this point?

We have no questions in queue.

Okay. And we do not any additional questions either. So we will go ahead and wrap up the call at this point. As a reminder for those of you who may have missed parts of the call, or would like to listen to it again we will post a replay on our website in a few days. Thanks again for joining us today and for your continued support of Diamond Hill and we look forward to talking with you again next quarter.