Quick Take: The AIM Global Aggressive Growth Fund/A (AGAAX) focuses on rapidly growing companies. Its emphasis on small-to-mid-sized ones, and its willingness to invest in emerging markets, has helped it in recent months.
The $883-million fund’s total return of 39.2% last year was not far below the 40.7% gain posted by the average international stock fund. But through the first five months of this year AIM Global Aggressive was leading its peers. It was up 5.6% at the end of May, while similar offerings were down 0.2%.
The fund can be volatile, however. After returning 70.6% in 1999, it posted losses in each of the next three years. Also, expenses are high. The fund’s expense ratio is 2.1%, versus 1.81% for its peers. The AIM fund’s expense ratio includes a 0.5% 12b-1 fee.
The Full Interview:
Why should Americans look beyond their own borders for investments?
To start, they can diversify their portfolios, because most stocks trade on exchanges outside the United States, says Jason Holzer, who helps run the AIM Global Aggressive Growth Fund. Secondly, foreign stocks feature better valuations than domestic ones these days, he says.
“We just feel that there are tremendous growth opportunities outside the U.S.,” Holzer says.
The fund can and does buy companies headquartered in this country. But regardless of where they’re based, they have to be more than a bit profitable to find a home in the portfolio.
“We haven’t set any hard and fast limits, but in the main, these are pretty aggressively growing companies,” co-portfolio manager Barrett Sides says of the fund’s holdings. The group currently sports earnings that are increasing by about 20% annually, he says.
Impressive bottom lines won’t necessarily pique the managers’ interest, though. They need to be confident that growth rates can accelerate and be sustained over time. They also keep an eye out for things like analysts’ estimates that get revised upwards, and results that exceed those projections. Solid margins and returns on equity and invested capital appear on the managers’ checklist, too, along with strong cash flow and balance sheets.
“Because it’s sort of a momentum-based portfolio, we might have a willingness to pay slightly higher multiples for good growers that we think have a chance and a likelihood to beat the market’s expectations,” Sides says. “But we’re certainly mindful of not overpaying for growth.”
The fund’s three portfolio managers have separate regional responsibilities. James Birdsall focuses on the U.S., Holzer concentrates on Europe and Canada, and Sides follows Asian and South American stocks.
About 10% of the fund’s shelf space is devoted to large companies — those with market caps of more than $12 billion. But the managers prefer to focus on small-to-mid-sized companies because they are less widely followed by analysts. Stocks like these can take off when brokerage houses begin following and recommending them.
Companies in emerging markets appeal to the managers for the same reason, and because they tend to grow rapidly, Holzer says. These stocks currently account for nearly 20% of the fund’s assets.
Holzer acknowledges that owning these stocks can be risky. “But we think there are also significant rewards,” he says. Holzer maintains that these investments have “added a lot of value” to the portfolio over the last few years.
Generally the fund limits its holdings in developing countries to what Holzer describes as “blue chips.”
An example, he says, is OTP Bank, a Hungarian savings and commercial bank that is the biggest in the country. The bank, one of the fund’s top holdings, grew by about 38% last year and is expected to grow by 25% in 2004, yet its shares trade for around 10 times earnings, according to Holzer. The stock is up 55% so far this year, making it one of the fund’s best performers, Holzer says.
A recent addition to the fund is Computershare, an Australian company that provides share registry, investor relations and related services, and technology to securities companies on five continents. The company has been expanding its operations through acquisitions and has been garnering new customers in the U.K., in particular, Sides says. The fund has owned Computershare on and off over the last few years, and took a stake in it again in February.
Around the same time, the managers invested in William Hill, one of the largest operators of gambling shops in the U.K. New legislation has enabled the company to increase the number of slot machines at each location, Holzer says. The gaming devices are highly profitable, and their added numbers have improved what was already “a pretty good business with very stable” cash flow, he says. Hill also looks good because it has been growing by about 20%, but its stock trades at about 14 times earnings, Holzer says.
A company that’s typical of the fund’s European holdings, Holzer says, is Open-Joint/Vimpel Commun ADS (VIP). Known as Vimpelcom, it is the second largest provider of wireless telecommunications services in Russia, where, Holzer notes, the market for cell phones is relatively untapped. Vimplecom has grown by 100% in each of the last two years, yet it stock sells for only about 13 times projected 2004 earnings, Holzer says. Also, in a country where corporate governance can be a concern for investors, Vimpelcom’s is “probably the best,” he says. With a year-to-date gain of 32%, Vimpelcom has also made a strong contribution to the fund’s results, the managers say.
The fund’s No. 1 stock, Anglo Irish Bank, has held that position for several years, says Holzer. He characterizes the bank as the fastest growing and most efficiently run one in Europe. The managers say they also like Anglo Irish because it consistently meets or beats analysts’ estimates.
Just as positive financial characteristics can gain a stock entry to the fund, weakening fundamentals can result in it being ushered out. For example, Affiliated Computer Svcs`A` (ACS), which provides information technology services, was sold earlier this year in part because its sales growth had begun slowing, says co-manager James Birdsall.
The managers tend to sell stocks at a slower pace than than their rivals. AIM Global Aggressive Growth’s turnover rate last year was 64%, compared to 83.8% for similar funds.
Contact Robert F. Keane with questions and comments at: