While Glen Hilton naturally intends to maintain the excellent track record ofAIM Canadian First Class, he also plans to make his own mark. Since taking over as lead manager of the $1.1-billion fund in January, he has been trimming back its 90-odd names and intends to reduce that number to between 50 and 60. To limit his stock-specific risk, however, he will restrict holdings in any one company to about 4.5% of the fund's assets.
Hilton, 33, a San Francisco-based portfolio manager at AIM Capital Management Inc., also aims to lower the portfolio turnover in the fund. In 2004, the turnover was 184.4%, somewhat lower than the eye-popping 257% in 2003.
Much of that was due to the willingness by former lead manager Roger Mortimer to take profits from short-term positions. With a view to holding stocks for 12 to 18 months, Hilton plans to keep turnover at about 75%.
Launched in September 1997, AIM Canadian First Class has gone through several name and management changes. It was under Mortimer's tenure that the fund developed a high profile and earned its four-star Morningstar rating. It has been a top-quartile performer for the past one, three and five-year periods. Hilton played a role in achieving those numbers, since he first began helping Mortimer on the fund in August 2002.
From a defensive standpoint, Hilton seeks corporate characteristics that stack the odds in his favour. He looks for companies with strong balance sheets and steady cash flow, and whose management acts in the best interest of shareholders.
Then he tries to evaluate what the company might be worth, based on past history rather than forecasts. "We're looking to take the 'macro' out of the investment equation," he says. He notes, for instance, that he would not buy an oil stock based on the price of crude oil since it would be inconsistent with his methodology.
Pan-Ocean Energy Corp. (
POC.SV.B/TSX), a top holding, is representative of his stock-by-stock approach. An intermediate-sized oil firm active in Gabon, it was trading at a 30% discount to its peers when he first identified it in 2003. Noting that it had no debt, and management held a significant stake, Hilton says he "could not identify a lot of downside in the value of the business."
But on the positive side he observed that the company had substantial reserves of oil that were not reflected in the share price. "It was a matter of time before the market also discovered there was an opportunity," says Hilton. Acquired at $5.65 in June 2003, the stock recently reached $26. He expects that the shares could rise to $35 to $40 within 12-18 months.
A native of San Francisco, Hilton was always interested in the stock market and determined to get into the investment industry. After he graduated in 1995 from Chicago's Loyola University with a bachelor of arts in economics, he returned to San Francisco where he landed a junior accounting position in the back office of Montgomery Asset Management. Within eight months, he worked his way into the research department.
Three months later, as he began covering the auto industry, he took notice of Renault SA, and Nissan Motor Corp., both of which were "classic" value names that were cheap and unloved. Later, he branched out into heavy industrials, energy and capital equipment, mostly outside the U.S.
"There are many shades of value investors," recalls Hilton. "I found myself through practice and discovered by the late 1990s that my sectors were not sexy at all. My investment ideas were not at the top of the food chain."
Indeed, as a price-conscious investor he found himself out of sync at a firm that was becoming less price-sensitive. In July 2002, he joined AIM Capital, where he shared a similar investment philosophy with his former colleague Mortimer. In September of that year, he also joined the team of the multi-manager $101.8-millionAIM Trimark Core Canadian Equity Class.
Like his predecessor, Hilton strives to win by not losing. "I would much rather have a portfolio of stocks that go up 10%, than a volatile portfolio, with one stock up 15%, another up 25%, but the last one down 35%. The consistent, get-rich-slow approach works better," he says.
That's not to say that AIM Canadian First Class hasn't experienced losses under Mortimer's and Hilton's tenure. For instance, the fund lost 7.5% during the very difficult 2002 market. Nonetheless, it still finished well ahead of the 12% loss by the benchmark S&P/TSX Composite Index.
"Protection on the downside is where you stand out," says Hilton. "As a value investor, I worry about how much money I can lose. I'm always thinking of downside protection."
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