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.