Quick Take: Carl Marker, the manager of IMS Capital Value Fund (IMSCX), looks for value stocks gaining momentum so that he doesn’t have to wait too long for them to rebound. He says he takes this approach because turnaround companies often take at least two years to resolve their problems.
The manager searches for promising investments in the sectors he says have been the most profitable for the last 50 years: health care, technology, finance, consumer staples, and communications. To dampen risk, he practices “concentrated diversification” by avoiding large sector bets and holding 40 to 60 stocks. Volatility is moderate. The fund’s three year standard deviation is 18.1%, versus 17.5% for the peer group.
Marker completed transitioning the fund’s strategy from purely value to a mix of value and momentum in 2000. For the three years through last year, the portfolio rose 18.1%, on average, compared with 4.8% for the S&P 400 MidCap Index. This year through May 14, the fund was up 2.3%, while the index fell 2.0%.
The Full Interview:
S&P: What is your basic investment philosophy?
MARKER: We invest in mid-cap stocks that combine value and momentum characteristics. We like mid-cap stocks because they offer the liquidity and proven managements of large-cap companies with the growth and nimbleness of small companies. We like seasoned companies that are turning around when their stock prices are cheap. They have time to right the ship.
S&P: How do you combine value and momentum in deciding on investments?
MARKER: Our process starts with value. Once we have narrowed our universe to under valued companies that are turning around, we look for momentum in their stock prices to determine when to buy. Momentum is definitely secondary, but it helps us determine our entry point into a stock.
S&P: Why do you wait to invest in a company when they’re turning around?
MARKER: We try to avoid getting into a stock too early and sitting on dead money. Once companies lose value, about 80% will underperform for a minimum of two years while they work through their problems.
S&P: Do you focus on certain sectors for turnaround investments?