July 2007

PAST PERFORMANCE: The future of leisure

"Having the same manager in place for ten years means it is more likely that history is a suitable map for the future" - Niklas Tell, Tell Media Group Finding a fund manager who has been with the same fund for more than ten years is not an easy task, but they exist. One is Mark Greenberg who has managed the Invesco global leisure fund since 1996. Having the same manager in place for ten years means that it is more likely that history is a suitable map for the future. Categorisation of funds is one of the key tasks when trying to look how successful a particular offering has been in the past: ie, to see how it compares with its closest peers. Categorisations also often form the basis of how funds are rated by companies such as Morningstar and Lipper. This fund, the Invesco global leisure fund, is a good example of when it is not a straightforward call. Morningstar has decided to place it in ‘sector equity other’, a category which does not lend itself to meaningful intra-category comparisons. But looking at the set up of the fund we can gain some insights by comparing it to its closest relatives. At the end of April the fund had some 72% of assets in the US and according to Morningstar the fund has a growth bias. That means a comparison with the US large-cap growth equity category could be of interest. However, as its scope is global, and considering the official benchmark is MSCI World, a comparison with the global large-cap growth equity is also of interest. Both comparisons tell the same story. The fund has outperformed the category average in both cases in each calendar year since 2002 (2005 being the exception). In absolute terms the fund is up some 20% over the last 12 months in euro terms. In short, this fund lost less in the bear market and gained more as the markets turned around in 2003. Coming back to the fund itself it is important to understand that this is not an ordinary global equity fund or a typical sector fund. Greenberg has defined his investment universe in the following way: “I describe leisure activities as those things people do because they want to, not because they have to. It’s the goods and services we spend our money on once we’ve taken care of the essentials.” Looking at the sector breakdown reveals that it is not a typical sector fund as it has investments across a range of sectors. At the end of April some 35% of assets were invested in the media sector, 25% in consumer services and an additional 11% in food, beverage and tobacco. Some sectors are, however, clearly absent from the portfolio, such as energy, utilities and industrials. A similar look at the geographical breakdown reveals that the Invesco global leisure fund may have a global mandate, but it is not as diversified as an ordinary global offering because some 72% of assets sit in the US. It should, however, be highlighted that many of the US companies in the portfolio derive a large portion of their revenues from non-US operations. From an investment process point of view Greenberg takes a long-term view and evaluates potential investments on a two- to three-year horizon. This also means that the turnover of the portfolio is fairly low and there is a degree of consistency in the top names of the portfolio. This also means that he is willing to invest more in his most favoured stocks. At the end of April the top three stocks (Omnicom, News Corp and Harrahs Entertainment) held close to 15% of assets. As indicated by the better-than-category-average performance in the bear market, Greenberg is also sensitive to valuations and the strategy could best be described as low P/E. The biggest question mark would be timing: Is today the best time to invest in goods and services that consumers spend their money on once they have taken care of the essentials? If or when you think that is the case then this is an interesting offering. • Niklas Tell is the founding partner of Tell Media Group © fe July 2007

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