Like any value investor, Roger Mortimer seeks stocks with low valuations. But the lead manager of the top-ratedAIM Canadian First Class is anything but patient for a payoff.
His brisk trading pace, typically involving a portfolio turnover rate of one and a half to two times a year, sets him apart from the buy-and-hold style espoused by more traditional value managers. "We basically have the same first criteria as other value investors; we want to buy stuff cheap," says Mortimer from his office in San Francisco. "But we have a second additional criteria: somebody better be doing something to make them less cheap or otherwise they'll be cheap for a very long time."
Mortimer says the time value of money is an important concept in investing, and the sooner he can take profits the better off investors in his fund will be. "Simply owning a bunch of cheap stocks doesn't give our unitholders any return, and it doesn't give me any job security," he says. "It is very clear that the fund would not have generated returns without turnover."
A prime example of Mortimer's value discipline is how he played the dismantling of the Canadian Pacific conglomerate. He bought shares of Canadian Pacific Ltd. in February 2001, when management announced it was breaking up the company into five operating units.
Eight months later, exploiting the disappearance of the holding company discount, he began selling shares of the spin-off companies. There was "25% free money on the table to be taken," he recalls.
While the house style at AIM Capital Management in the United States tends to be focused on earnings growth, Mortimer is more interested in buying assets. "I'm trying to buy into situations where our downside is extremely limited and our expectations on the upside are much more modest," he says.
Although he is mindful of index weights and any deviations from the S&P/TSX Composite benchmark, Mortimer's stock picks are based on their individual merits, as opposed to industry-sector considerations. Depending on market conditions, the fund typically holds 75 to 85 companies. He is mandated to be fully invested at all times.
Mortimer runs the portfolio with one other portfolio manager, Glen Hilton, who was brought on board last summer. They use street research and build their own valuation models. Because Mortimer has met the management of virtually all of the companies they invest in, he doesn't see a compelling reason to go out and kick the tires. As well, two to three companies and analysts meet with him every day.
Mortimer, 42, a senior vice-president and senior portfolio manager of Houston-based AIM Capital Management Inc., has managed the $604-million Canadian equity fund since its inception in September 1997.
He is responsible for several other portfolios in the AIM Trimark family, the largest being the $555-millionAIM Canada Income Class, a specialty fund that invests mainly in large-cap common stocks and employs covered-call option strategies. In total, including funds marketed to U.S. investors, he manages about $1.3 billion (Cdn.) in assets.
Mortimer received a BA in economics from the University of Western Ontario in 1982, and an MBA in 1986. From 1986 to 1987, he worked for Wood Gundy Inc. in Toronto as a corporate finance associate.
From 1987 to 1993, he was a self-employed consultant. He considers the experience that he gained during this six-year period to be one of his greatest strengths as a manager.
In January 1994, Mortimer joined Global Strategy Financial Inc. (a former fund company that was acquired by AGF Management Ltd. in 2000) as an executive in corporate finance. In December 1995, he moved to Global Strategy's Vancouver office as a portfolio manager on five equity funds.
In September 1997, he was hired by GT Global as a portfolio manager. In 1998, after GT was acquired by London-based AMVESCAP PLC, Mortimer became an employee of AIM Capital Management.
Managing Canadian equities from outside the country hasn't been a handicap for Mortimer. AIM Canadian First Class has a five-star Morningstar rating and has performed in the top quartile among Canadian equity funds over the one-, three- and five-year periods ended Jan. 31. "We sit at a distance but we're quite plugged in," he says. "We enjoy not being in the middle of the Canadian market because we think we look at it more objectively."
Looking ahead, Mortimer says he will continue to emphasize a defensive, low-risk approach. "We'd still err towards owning companies that have clean balance sheets, pay good dividends, trade at cheap multiples of cash flow - companies where the downside is quite limited - and I'll be the first to tell you that if the market takes off, we'll get left behind."
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