Dec. 22, 2004 -- The AIM Global Value Fund/A (AWSAX) can buy companies in the U.S. and all over the world, but lately its managers have been having difficulty spotting compelling investments anywhere.
As a result, the fund's cash position has hovered around 30% during the second half of this year, says Glen Hilton, who oversees the portfolio with Roger Mortimer. Greenbacks have stacked up as they've sold stocks, Hilton explains.
"I'm not finding a lot of value out there right now," he says. "There aren't tons of screaming investment ideas."
That hasn't hurt the fund's recent performance, though. AIM Global Value was up 16.4% this year through November, versus a gain of 10% for the average global equity fund.
Since taking over the fund two years ago, Hilton and Mortimer have also kept it ahead of its peers. For the one-year period ended last month, the $63-million fund returned 24%, versus 16% for similar funds. For the three years, it rose 12.5% annualized, versus 6% for its peers.
When they put shareholders' dollars to work, the managers take a defensive approach in looking for inexpensive stocks.
"As value investors, we're worried first and foremost about how much money we can lose," Hilton says.
Eventually, he and Mortimer will build a case for why a stock might go up, but initially, they want to see good reasons why it shouldn't go down, Hilton says.
In picking stocks, the managers hunt for those priced low relative to a company's cash flow and book value. Beyond that, they want to see sound balance sheets, low debt and robust cash flow. Companies that use their cash to pay dividends or buy back shares appeal to them, too.
Although they prefer profitable companies, Hilton says he and Mortimer will bet on those that aren't generating earnings if they think the underlying assets of the business will boost its bottom line at some point. They also try to identify a catalyst, like a new product or a restructuring, that can lift a stock.
In the same vein, the managers keep a lookout for what Hilton calls a "free call," that is, something which might improve the value of a stock or a company but that's not reflected in the price of its shares. As an example, he cites the the potential for Microsoft Corp (MSFT), one of the fund's holdings, to benefit from a global economic rebound.
Mortimer and Hilton use the same investment approach in piloting AIM Opportunities I Fund/A (ASCOX), AIM Opportunities II Fund/A (AMCOX) and AIM Opportunities III Fund/A (LCPAX), which they joined at the end of last month.
Just as it can invest in companies regardless of where they're based, the Global Value Fund can buy those of any size. Right now, the portfolio, which typically contains about 75 stocks, holds roughly equal numbers of small, mid-cap and large-cap stocks.
Hilton and Mortimer base their stock selection on the merits of individual companies. The fund's country weights are a by-product of that process. At the end of November, Canadian companies accounted for 27.1% of the fund's assets, and U.S. stocks made up another 24.5%.
Two companies that illustrate what the managers look for in choosing investments are Pan-Ocean Energy Corp. Ltd. and Fording Canadian Coal Trust, Hilton says. The stocks were the fund's top two holdings at the end of November.
The fund bought Pan-Ocean, a Canadian oil and natural gas company, about a year ago, Hilton says, because the managers liked the prospects for fields it was exploring in and off the coast of Gabon. Since then, each well it has drilled in those areas has proven to be an "enormous success," causing Pan-Ocean's share price to nearly quadruple, Hilton says.
Fording is an open-ended mutual fund trust that distributes cash flow to shareholders in the form of quarterly dividends. Its principal asset is a 65% interest in the Elk Valley Coal Partnership, a miner of metallurgical coal that is used in the production of steel. Fording stands to be a beneficiary of currently tight supplies of the commodity, for which prices are increasing, Hilton says.
Those same dynamics, Hilton says, are helping Macarthur Coal Ltd, an Australian mining co., and Teck Cominco Ltd., another Canadian miner and smelter. The companies ranked third and fifth in the portfolio on Nov. 30.
The fund's five biggest holdings at the end of last month included BMTC Group Inc., a Quebec-based retailer of furniture, appliances and home electronics products. The stock looks reasonably priced compared to the company's cash flow, Hilton says. In addition, BMTC is virtually debt free and is a potential takeover candidate, he says.
When it comes to selling, the managers will unload a stock that becomes pricey. That was what lead them to banish Canadian brewer Molson from the portfolio this summer, Hilton says. The company's shares moved higher after it agreed to merge with American beer maker Coors (Adolph)`B` (RKY). The managers bought Molson at $29 (Can.) in January and sold it for $35.50 (Can.) in July, Hilton says.
Hilton notes that he and Mortimer tend to hold stocks more briefly than other value-oriented investors. The fund's turnover rate should typically average 175%-225%, he estimates. AIM Global Value turned its portfolio over at a 372% clip for the year ended in November, compared to its peers' 88.7%. Hilton attributes that to the radical facelift he and Mortimer gave the portfolio when they took it over.
"We don't want to buy and forget about these stocks," Hilton says. "We make our money and we move on, put the money in the bank and think about the next idea."
Contact Bob Keane with questions or comments at firstname.lastname@example.org