The AIC American Focused Fund is back in the stock-buying business.
The $1.6-billion fund, the source of some controversy in the past because of its hefty cash position, has snapped up at least seven stocks under the leadership of new manager James Cole. The fund's composition has shifted to hold about 59-per-cent equities, up from a slender 20 per cent under former manager Larry Sarbit.
Mr. Cole is cagey about holdings, but did disclose that the fund and its classes have acquired positions in three U.S. financial service giants: Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. In addition, the fund has bought positions in the consumer staples and energy sectors, and now holds a total of 10 stocks.
Over the next few weeks, the portfolio will continue to grow, eventually holding about 15 stocks. Mr. Cole, a senior vice-president and portfolio manager of Burlington, Ont.-based AIC Ltd., is looking to achieve 15-per-cent annual gains via a mix of factors, including dividend yield and profit growth.
Mr. Cole declined comment on the fate of three stocks held when he took over the fund on March 28: car retailer AutoNation Inc., radio and TV company Clear Channel Communications Inc. and communications giant MCI Inc.
The stock-buying binge is a fundamental shift in strategy compared with Mr. Sarbit's tenure. The so-called "deep value" manager maintained there were few bargains to be had in the U.S. market so he held about 80-per-cent cash in his funds.
The plan gave Mr. Sarbit full exposure to the strong Canadian dollar and investors reaped the rewards. AIC American Focused has trumped the returns of rival U.S. equity funds over the past one, three and five years ended April 30.
But the investment strategy ran roughshod over AIC's "buy, hold and prosper" philosophy that emphasizes long-term ownership of blue-chip equities. Fellow fund managers, in fact, joked that when it came to Mr. Sarbit's funds, AIC stood for "all in cash." In July last year, the Canadian Investment Funds Standards Committee (CIFSC) moved the fund from its peers in the U.S. equity group to the more exotic specialty-miscellaneous category because of the tiny equity holdings.
In the nine-month period ended March 31, an estimated $400-million was redeemed from the AIC American Focused fund group, reflecting "the disbelief that there were only three undervalued businesses in the U.S.," Mr. Cole said.
"There had been growing disenchantment with the 2.5-per-cent MER money market fund," he said. (The management expense ratio is in fact 2.41 per cent.)
"If there are roughly a thousand businesses in the United States of investable size, I only need 10 to 15 to get very fully invested."
The industry has taken note of Mr. Cole's shopping spree. On April 28, CIFSC shifted the fund back to the U.S. equity camp. Investment website Morningstar.ca resumed coverage yesterday, granting the fund a rare five-star rating.
Now that James Cole is in charge of the AIC American Focused Fund. It is bank in the stock-buying business. Under former manager Larry Sarbit the fund held less than 20 per cent equities.
Category: U.S. equity
Manager: AIC Ltd.
Load status: Open-ended
RRSP Eligibility: Foreign
Total assets: $974.1-million
Management expense ratio: 2.41%
Minimum investment: $250
Globefund 5-star rating system: **
To April 29, 2005
2-JP Morgan Chase....7.1
3-Bank of America (Returns to April 30, 2005)...6.9
6-month compound annual: -1.5%
1-year compound annual: -1.9%
3-year compound annual: 1.6%
5-year compound annual: 6.3%
© 2007 The Globe and Mail. All rights reserved.
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