Positive mention in Barron's:
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MAY 15, 2000
Balancing Act
An AIM portfolio manager goes where some of his peers fear to tread
By MARA DER HOVANESIAN
There are raging bull markets and then there are just raging bulls, and Houston-born-and-bred money manager Claude C. Cody IV has known the difference since he was this high. The 48-year-old Texan and manager of the $3.4 billion AIM Balanced fund doesn't much care for "the kind that will stomp on you," that is to say, those with two horns and a nasty disposition. "He knew what those beasts were all about," recalls John Stein, a former college roommate. A naive out-of-towner when he met Cody 30 years ago, Stein was nearly coerced in "one of a fair number of wagers in those days" to ride a bucking steer. Cody "was doing then what he's always trying to do: take advantage of the underinformed," says Stein, a banker from Nashville.
Not a bad trait for a portfolio manager to possess.
More urbane than cowboy, Cody has embraced health-care, technology and telecommunications shares much more eagerly than have most other balanced-fund chiefs, who typically invest in a 60/40 mix of stocks and bonds.
Claude C. Cody IV: not afraid to make some hefty bets on technology
By beefing up tech to almost 55% of the 130 stocks held by the fund, Cody has shown that he can ride a bull market. He's also felt the pain produced whenever the market bucks, as this one did in April and, most recently, just a few days ago.
AIM Balanced, dubbed a "lower volatility growth fund" by Cody, has gained 14.45% a year since he took its reins in October 1993. Its performance has made it No. 17 among the 141 balanced funds in existence throughout that span, according to Lipper, the fund-tracking service. Last year, AIM Balanced was up 19.04%, putting it in the top tenth of its group; its average peer advanced by 8.76%.
The added firepower of technology, however, means the all-weather fund sputters more than most in market upsets. It's down 8.42% since the first quarter ended, while its group is off 3.57%.
"We have some rapidly growing companies and when they stumble, you have some pretty volatile stock prices," concedes Cody, who manages the fund for London-based Amvescap. "When you're going through a correction, the one you're going through seems the most severe you've ever gone through."
Cody, who's based in Houston, insists that he's no reckless wrangler. He and equity co-managers Craig Smith and Meggan Walsh attempt to hogtie volatility by owning a lot of stocks and capping each position at roughly 2% of assets. However, the average stock in the portfolio sports a pretty hefty multiple -- 35 times next year's expected earnings.
But Cody believes that stock-price performance will always follow earnings growth -- his key measure -- and that this "ultimately winds up in the track record of the fund."
The companies he favors aren't necessarily the fastest growers, but rather those that are on a steady course upward.
One example is Los Angeles-based Univision Communications, a Spanish-language broadcaster. Univision's profits are expected to rise 33%, or about $1 a share, this year, as it continues to broaden its reach into the nation's heavily Hispanic markets, such as San Antonio and Miami. The company, which also has production capabilities, posted record first-quarter results, and Cody thinks the good news will continue.
He added to the position recently, as the stock slumped below the 52-week high of 115 9/16 it reached last month. Cody, who first bought Univision in September 1996 at an average price of $24.50 a share, sees it hitting 150 in 18 months. It's currently trading around $100.
There's a similar growth story in Telefonica, the Spanish telecom headquartered in Madrid. The stock is one of a handful of foreign issues owned by AIM Balanced (overseas shares account for just 8% of its equity holdings). A small position at less than 1% of assets, Telefonica was picked up for an average cost of $48 per American depositary receipt. Cody thinks the ADRs could climb to $82 by the end of 2001.
The big telecom's earnings growth is a "modest" 20% a year, but it's "probably one of the most aggressive telephone companies in Europe," Cody says, noting that it's struck up partnerships with other European telephone companies to build a wireless and Internet presence continent-wide.
While April's tech-stock swoon was "rough," it didn't daunt Cody, who took advantage of price declines to load up on technology names that appeared to have good underlying growth and that were selling at prices that had been "hammered pretty hard."
Cody added to his position in San Jose-based SDL, a fiber-optic network outfit that he views as a relatively cheap alternative to JDS Uniphase. SDL's products carry data, voice and Internet information for cable and telecommunications applications.
He got in at an average cost of just under $41 a share in September. Although he views JDS Uniphase as the leader in its sector, that company's stock was "just at extreme valuations, and this was a way to get involved without paying that type of price."
SDL's earnings are likely to climb by 40%-45% this year, and the company reported record first-quarter results that easily topped analysts' forecasts. Cody expects earnings estimates to be revised upward a few times this year.
Table: At A Glance
The stock recently was changing hands at around 182, markedly below the high of 244 3/4 it set in March. But Cody maintains that it could rebound in a big way, going as high as $250 by the end of 2001. "Everything in fiber-optics is going gangbusters," the portfolio chief says. "This is one of those just-need-to-have technologies. . . . " |
