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Nice interview
Layth Matthews speaks with AIM's
Jason Holzer
On InvestorCanada.com
Sept. 1, 1999
MATTHEWS: Today I'll be speaking with Jason Holzer in
Houston, Texas who is portfolio manager of the AIM
Canadian Balanced Fund. Welcome Jason.
HOLZER: Thanks Layth. Happy to be here.
MATTHEWS: Jason, we've seen a lot of new highs and
volatility in the stock markets of late, and there has been
talk of stock prices being overvalued. Many investors are
wondering what is a reasonable allocation between stocks
and bonds and cash. What's your view?
HOLZER: I'm involved in the equity portion of the
Canadian Balanced Fund. With the Balanced Fund we try
to keep a fixed ratio of 60/40 equities bonds. This stems
from the asset allocation that we have used in our US
Balanced Fund, which has a very successful long term
track record. We found that that is a close to optimal
allocation given our style.
What we are really trying to do on the fixed income side is
play things safe. We generally go for higher credit, liquid
instruments, not really trying to take a lot of risk for yield.
We take enough risk on the equity side. We tend to be
fairly aggressive, so you have a nice balance there.
MATTHEWS: How far out of whack will you allow the
relative weighting in the portfolio to become before you
reshuffle back to 60/40?
HOLZER: It's done pretty continuously, so things don't tend
to get out of whack too often.
MATTHEWS: How are you allocating the equity portion of
the fund at this stage?
HOLZER: Right now it's allocated among 82 companies,
about 50 of which are Canadian. The average market cap
is somewhere around $19 billion. The weighted average
market cap is about $14 billion.
We run an all cap fund. So we invest in stocks from
everything under $300 million cap to over $5 billion. Most
of our stocks, about 70%, are above $1 billion in market
cap. But we also have some smaller stocks as well. So
we're pretty much looking for exciting opportunities
wherever we can find them, irrespective of the market cap.
MATTHEWS: Earlier you mentioned that the Canadian
market has advanced with greater breadth than the US
market. Can you explain what that means?
HOLZER: Sure. One aspect of the US market that has got
a lot of press is the fact that over the last few years the
advance in the market has been restricted to only a
handful of names. Generally large cap growth companies.
In Canada, this year particularly, we've seen quite a bit
better breadth.
If you look at the TSE 100, you see it's only up slightly over
7% year to date, whereas the TSE 300 is up 8.5%, and
the TSE 200 is up 15.8%. So in fact, those mid and
smaller cap companies are outperforming the large caps
in the Canadian market. And that's usually a sign of health
in the market when many stocks are participating in the
advance.
If you have an extended period in which only a handful of
stocks are driving the overall market performance, that's
generally a good sign of health. It's much better when you
have broad participation of stocks, many different sizes,
sectors etc., rather than being concentrated in a handful of
names.
MATTHEWS: What do you think it says about the US
market that it has been so focused on the large caps?
HOLZER: That's one distressing point, but it also makes
for a good bull case for small cap stocks in the US, which
don't support anywhere near the valuations that some of
the mega caps do.
MATTHEWS: Where are you finding the best earnings
momentum in the Canadian market?
HOLZER: Generally in the Canadian market we a slightly
different approach than a lot of Canadian investors in that
we generally tend to focus on growth sectors. We primarily
shun cyclical sectors. We tend to have large weightings in
technology, consumer cyclicals and other consumer
products, medical products etc. We're finding plenty of
momentum in those areas, and have done so for the last
several years.
MATTHEWS: What are some familiar tech stocks that
you're investing in?
HOLZER: We've been long-time holders in JDS Fitel, now
part of JDS Uniphase, and Nortel Networks, Celestica,
Research in Motion, and C-Mac, which are an electronics
contract manufacturer. These names have been all strong
performers over the last couple of years.
MATTHEWS: Do you have any opinion on the Air
Canada/Canadian merger talks?
HOLZER: From an efficiency standpoint, I think it makes a
lot of sense where you have a lot of elimination of
duplicate routes and consequently some of those savings
could be passed on to the consumer. It just doesn't make
sense to have overlapping flights which are say, half
empty. So, from strictly a yield improvement standpoint, I
think a merger does make a lot of sense.
MATTHEWS: But neither one of the airlines has attracted
your investment capital?
HOLZER: No, they have not. They certainly have not been
exactly harbingers of earnings momentum. So we have
stayed away from that area.
MATTHEWS: Can you give us an example of one of the
better stocks in your mind in Canada today?
HOLZER: Really a benchmark stock is JDS Uniphase. We
held it back when it was JDS Fitel. It has been our largest
holding for some time, and has been a very successful
stock for us.
MATTHEWS: Can you tell us a little bit about that story?
People have been recommending that stock for at least
six months, maybe eight months. You have to wonder if it
has become overpriced at this stage?
HOLZER: Well again, we don't think of the valuation as
static because it's quite likely based on the past earnings
patterns that these stocks have had that the estimates are
conservative that are out there. Each of these companies
has tended to exceed forecast. You've seen analysts
ratchet up their estimates almost continuously, certainly for
JDS Fitel, if not Uniphase, over the last several years.
So we don't look at the valuations in a static sense, but we
do see a company that has accelerating growth and is
probably in the hottest area in telecommunications
equipment. So from that standpoint, we think it's a solid
long-term holding.
MATTHEWS: Can you tell us a little bit more about the
product?
HOLZER: Yes. JDS Uniphase is the result of a merger
between two companies. One Canadian company, JDS
Fitel, which produced passive components for wave
division multiplexing.
In layman's terms, this equipment expands the capacity of
fibre optic networks and allows telecom equipment
makers and telecom carriers to leverage their existing
investments and expand capacity without a lot of capital
investment.
JDS merged with Uniphase, which was a US company
involved in active components for wave division
multiplexing. In other words, they produced the lasers that
actually sent the optical signals down the network. So you
had a nice complimentarity in the product line between the
two companies.
Together the companies are basically the dominant
maker, several times the size of the next largest
competitor in this type of equipment optical components.
It's an extremely fast growing area. JDS Fitel in the last
quarter showed about 130% sales growth, that has
certainly accelerated over the last few quarters.
The company pretty much sells to all of the major
equipment vendors, Lucent, Nortel, Alcatel etc. So they're
really, in a sense, supplying the armaments to these
people. You're not betting on which equipment maker will
take market share of it, rather, participating in the growth
of the overall area.
MATTHEWS: It sounds like the right place to be. Jason
can you comment on whether you think the advent of this
technology will somehow bolster the position of the local
telephone companies that have this fibre optic capability
already and can improve it?
HOLZER: That's really one of the growth areas for these
guys because previously they've been involved in long haul
networks. In other words, between two distant cities in the
US. But in fact, this equipment is really starting to be
implemented on a local basis and will expand to local
networks as well. That's just one added growth path for
JDS Uniphase.
MATTHEWS: Well, thank you very much for joining us
today, Jason, and for that overview of the Canadian
markets and JDS Uniphase.
HOLZER: My pleasure. |
