Read the last line if nothing else... :-)
Ian.
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TIP SHEET: AIM GT Mgr Uses Boeing As Role Model
By Ben Dummett
TORONTO (Dow Jones)--Looking for a model on which to build an investment strategy? Why not try Boeing Co. (BA), the big U.S.-based airplane maker?
Though the choice might seem odd to some, Boeing is the model for Derek Webb, manager of the C$900 million AIM GT Canada Growth fund. The fund has gained about 16.45% annually since its inception in December 1994, outperforming the 14.18% annual rise posted by the Toronto Stock Exchange 300 composite index over the same period.
Webb makes his investing decisions based on statistical data and fact about a company's earnings, not based on what he thinks might happen in the future. "I try to run my business the way Boeing makes airplanes. Boeing builds planes based on fact, not based upon opinion, so when it puts a wing on an airplane, it's not some engineer's opinion about what he thinks; it's based on statistical data and fact, and that's the way we run a portfolio," Webb explained.
Webb, who believes most stocks ultimately trade on the basis of a company's profit results, describes himself as an earnings momentum investor. That means he buys stocks of companies whose earnings are growing at a high rate "here and now" and that are also beating analysts' expectations with their results.
"The only way to outperform the market is to invest in companies that produce earnings that come in higher than expectations. Those stocks tend to outperform the market because this information isn't fully discounted yet," Webb explained.
Conversely, Webb sells stocks of companies which report negative earning surprises. "We found when a company produces one surprise, it generally produces another - positively or negatively," he said.
Despite Record, Fund Can Underperform Over Short Term
The bulk of the stocks held in the AIM GT Canada Growth fund trade on earnings results. However, Webb still invests in companies that trade off data other than earnings, such as cash flow and/or subscriber growth, in the case of Internet and wireless phone companies. He applies the same investing style to these other measures of performance.
Though the fund's track record against the TSE 300 is strong, it can sometimes lag the benchmark for short periods of time. That's because Webb's focus on earnings means he typically buys stocks only after they've rallied off their lows.
Indeed, for the first three months of 1999, the AIM GT Canada Growth fund trailed the TSE 300 benchmark, Webb noted, because he missed the beginning of the rally in the resource groups, particularly the forest-products and oil and gas sectors.
However, he has since built up his holdings in resource stocks to an 18% weighting from zero at the beginning of the year, and the fund's six-month gain of 7.39% is close to the TSE 300's 8.91% increase over the same period.
Webb didn't buy oil and gas stocks when oil prices were at their lows of about US$12 a barrel in February, but he did once the commodity price surprised investors by rallying strongly. Crude oil currently trades around $19 a barrel.
Likes, Oil And Gas, Forest-Products, And Tech Issues
In the oil and gas group, Webb owns Alberta Energy Co. (AOG), Petro-Canada (PCZ), Talisman Energy Inc. (TLM) and Precision Drilling Corp. (PDS), among others.
Webb said any decision on adding to, or subtracting from, this group depends on what happens to the oil price, not what he thinks will happen. "Right now we know that oil is trending upwards...(because) OPEC has been very successful at cutting supply," so he owns stocks in the sector. He would only add to his positions if OPEC subsequently cut production by more than already planned. Similarly, he would sell the stocks if OPEC's success at achieving cutbacks came to an end.
In the forest-products group, Webb's holdings reflect the better-than-expected performance of lumber and linerboard prices. They include MacMillan Bloedel Ltd. (MMBL), St. Laurent Paperboard Inc. (T.SPI) and Nexfor Inc. (T.NF).
Webb's fund also has a big weighting of about 18% in the technology sector, and his holdings included Nortel Networks Corp. (NT), JDS Uniphase Corp. (JDSU) and Celestica Inc. (CLS).
At the opposite extreme, Webb only holds one Canadian bank - Toronto Dominion Bank (TD) - because of the growth of its discount and online brokerage subsidiary TD Waterhouse Group Inc. (TWE).
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