SMARTMONEY.COM: The 'Other' Denver Fund Company
Dow Jones News Service ~ September 25, 2000 ~ 7:23 pm EST
By Dawn Smith
NEW YORK (Dow Jones)-- Quci, name a hot Denver-based fund firm. Let's try that again: Name a hot Denver-based fund firm that does not begin with the letter " J."
If you said Invesco, give yourself a pat on the back. Sure, Janus, with $300 billion in assets under management hogs the spotlight in its Rocky Mountain hometown. But Invesco is slowly but surely gaining its share of accolades.
Until the last two years, Invesco Funds - a subsidiary of London-based Amvescap (AVZ) - had largely gone about its business with little fanfare, running a slew of successful no-load sector portfolios as well as several notable diversified-growth funds. Since January 1998, however, assets have swelled from $16 billion to more than $56 billion today.
What's driving the growth? The same thing that's made Invesco's hometown competitor flush with assets: growth funds. And manager Tim Miller, who was promoted to chief investment officer this summer, has led the way, says Morningstar analyst Christine Benz. Call it trendy, but the returns have been solid. Over the five years ended Aug. 30, 12 of 22 Invesco funds landed in the top quartile of their respective categories.
The recent influx of assets has plumped up several funds, like the $10 billion Invesco Dynamics fund (FIDYX) and the Invesco Small Company Growth fund (FIEGX), which was an unwieldy $1.7 billion by the time it closed last month. That said, Invesco appears to be in control. "Unlike Janus," says Benz, " Invesco's funds don't tend to pack a lot into their top holdings, so liquidity isn't as much of an issue."
To find the best that Invesco has to offer, we searched Morningstar's database for Invesco funds with three-year annualized returns that placed them in the top 10% of their respective categories. We also required that their year- to-date returns fall in the top 25% of those same groups. All funds listed are no-load, have a minimum initial investment of $1,000 and expense ratios below the category average (for no-load shares).
Invesco Telecommunications Manager Brian Hayward has kept Invesco Telecommunications fund (ISWCX) focused on telecom-equipment stocks, instead of service names, helping it to garner a three-year annualized return of 56.6%. This places it in the top 6% of communications funds for the period, according to Morningstar. Year-to-date it's up 9.1% and bears an expense ratio of 1.24%.
This $4 billion fund, which Hayward co-manages with Donna Jaegers, aims to buy and hold the industry leaders in the telecom industry. Valuation is not crucial to the managers until the fundamentals change. "I don't think stocks all of a sudden go into a correction because somebody wakes up one day and says, 'Oh my God, look at the valuation!'" says Hayward. That happens, he believes, when negative news hits, prompting investors to look at valuation parameters. At that point, he adds, negative sentiment can continue to pull a stock downward.
With almost 30% of the fund invested in semiconductor firms and equipment manufacturers; SDL (SDLI), Applied Micro Circuits (AMCC) and PMC-Sierra (PMCS) are among the fund's top five holdings. Nevertheless, Hayward is sticking with sectors that have yet to reach their potential, such as the competitive long- distance carriers, also known as CLECs. His two largest holdings in this area are Time Warner Telecom (TWTC), up 2.3% year-to-date, and McLeodUSA (MCLD), down 37.9%.
Private equity investments account for about 3% of the fund's assets, and Hayward says they serve both offensive and defensive purposes. Offensively, such companies can improve the portfolio's returns. While on the defensive end, they keep him abreast of changes looming on the horizon, which might not otherwise surface until the initial public offering. Adds Hayward: "I want to know if there's a Cisco killer in a garage out there."
Invesco Blue Chip Growth The Invesco Blue Chip Growth fund (FLRFX) began its life in 1935, when it was known as the Finance Security fund. Today, the $2.4 billion fund offers a 32.7% three-year annualized return. That places it in the top 10% of its large-growth peers. It's up 17.26% this year and its expense ratio is a low 1.03%. The secret to success: a broad view of the term "blue chip," which includes lots of growth names. (Sound like the strategy of a certain local competitor?)
Trent May and co-manager Doug McEldowney define blue chips as companies that have established dominance in growth industries, or industries driving the global economy. Those companies must also have solid financials, good management teams and little competitive risk.
May looks for both solid blue-chip names like Cisco Systems (CSCO) (which he calls his "core" holdings) as well as smaller growth names like Redback Networks (RBAK) (which are "noncore"). Right now core holdings make up only 55% of assets, down from the previous 65% to 70% last spring. The change is the result of a dramatic portfolio shift, in which he sold Dell Computer (DELL), as well as the vast majority of his stakes in Intel (INTC) and Microsoft (MSFT). Why? Throughout 1999 May sighted the shift away from the personal computer in favor of the networking plays, and rearranged his portfolio accordingly.
The fund's largest holding is America Online (AOL), accounting for 9.4% of assets, followed by Palm (PALM) with 7.6%..May has owned AOL for four-and-a-half years, and is confident that the merger with Time Warner (TWX) will occur by late October, allowing the stock price to move up sharply in late 2000. Meanwhile, he sees Palm's dominance in the personal digital assistant market as key. "It's Palm's market to lose," he says.
Invesco European Growth stocks in Western Europe are the domain of the Invesco European fund (FEURX), which returned 22.2% on a three-year annualized basis, placing it in the top 4% of European-stock funds. Year-to-date it's down 3.04%, while its average peer has dropped 5.42% in 2000. With $1 billion in assets, its expense ratio is 1.52%.
Steven Chamberlain, who has managed this portfolio since 1990, isn't shy about valuations, preferring to make growth his priority. Among his top holdings are Sweden's Ericsson (ERICY), France's Alcatel (ALA) and the United Kingdom's Vodafone Group (VOD). According to Chamberlain's August commentary, the spread of tax reform - from Germany to nations such as France - is contributing to " investors' confidence that the Continent is steadily moving toward a more business-friendly environment."
At the moment, the fund has its largest weighting in the U.K. at 26%, followed by France at 15.3% and Germany at 12.3%. Within these markets, Chamberlain states that he's focusing on companies that are least susceptible to competition and subsequent price wars. As result, he's investing in infrastructure plays for communications networks, instead of service providers. More than 35% of the portfolio resides in the technology arena, providing higher returns, but added risk as well.
Invesco Energy Energy funds are having a great year, and the Invesco Energy fund (FSTEX) is at the head of the pack, with its year-to-date return of 48.7%. The fund has a three-year annualized return of 10%, putting it in the top 4% of natural-resources funds. Its expense ratio is the highest of our four candidates, at 1.68%.
At this $161 million fund, manager John Segner takes a broad approach to energy stocks, investing in all subsectors. That said, he only holds about 40 stocks, he points out, so stock-picking is key. This year, oil-services firms have performed the best within the portfolio, followed by independent oil and gas companies and natural-gas pipelines. Major internationals are the only laggards, says Segner. Plus, he expresses skepticism regarding the use of strategic oil reserves. "That's like putting a Band-Aid on a big gushing wound," he says. "It's not going to work."
The fund's largest holding is Coastal (CGP), accounting for almost 5% of assets, and up 95.4% this year. Coastal is merging with El Paso Energy (EPG), another holding, to create the largest natural-gas pipeline. Segner also likes Coastal's independent power-plant division as an added growth source. Plus, the company is selling at a price-earnings multiple below its growth rate, and Segner believes it still has room to grow.
For more information and analysis of companies and mutual funds, visit SmartMoney.com at smartmoney.com
(END) DOW JONES NEWS 09-25-00
07:23 PM |
