The AIM International Emerging Growth Fund is outperforming all its peers by buying European companies and shunning Latin America.
The $160 million mutual fund, led by Jason Holzer and Barrett Sides, rose at an annual rate of 23 percent during the past three years. In the same period, the average international stock fund gained about 5.6 percent a year, according to data compiled by Bloomberg. The AIM fund is up 5.6 percent in 2004.
Holzer, 31, and Sides, 39, invest in about 120 companies that typically have market values of less than $3 billion and generate annual earnings growth averaging 25 percent. About half of the companies are in Europe, including Anglo Irish Bank Corp. and German sporting-goods maker Puma AG, and most of the rest are in Asia and Canada. Just 1.5 percent of assets are in Latin America because of the managers' concerns about political instability in the region.
"Europe was lost in the shuffle because on the surface it wasn't very exciting," Holzer said in a telephone interview from his office in Austin. He co-manages the fund for AIM Investments, a unit of London-based Amvescap PLC.
The AIM fund often seeks companies, such as Bijou Brigitte Modische Accessoires AG, that are covered by few, if any, analysts. Holzer, who tracks European and Canadian companies, started buying shares of the German fashion-jewelry company in early 2003 when no analysts followed it. Today, two analysts occasionally write research about Bijou Brigitte, said company spokesman Maike Mennecke in Hamburg.
Shares of Bijou Brigitte more than doubled in the past year as the company expanded in Spain, Holland and Austria. The 571-store chain plans to have 1,000 retail outlets by 2008, Holzer said. It's the fund's third-largest holding after Canada's Trican Well Service Ltd. and Puma as of June 30.
Even though Europe's economy is growing at a slower rate than the United States' for an 11th year in 12, Holzer is optimistic because consumers in the region are saving more than their American counterparts. Household debt accounts for 108 percent of disposable income in the United States, compared with 77 percent in Europe, according to statistics from the European Central Bank.
"The consumer is far healthier abroad than in the U.S.," said Holzer, who studied quantitative economics and engineering at Stanford.
Holzer said he is bullish on Puma, Dutch window-blinds maker Hunter Douglas NV and French women's apparel retailer Camaieu SA. The fund earlier this year bought a stake in Homeserve PLC, the British domestic-insurance services business spun off from South Staffordshire Group PLC.
About 19 percent of the fund's assets are invested in Canadian stocks, the biggest concentration in one country. Shares of Trican Well Service, an oil field services provider in Calgary, Alberta, and Telesystem International Wireless Inc., a Montreal operator of mobile-telephone networks in Eastern Europe, more than doubled in the past year.
About 50 percent of the fund's assets are invested in Europe, but Holzer and Sides are increasing holdings in some Asian firms. In recent months, they bought shares of Japanese home builder Sekisui Chemical Co. and Public Bank Berhad, Malaysia's fourth-largest lender.
Sekisui Chemical's earnings rose 62 percent in the 12 months ended March 31. The company is positioned to capitalize on a pickup in home building in Japan as the economy improves, Sides said in a telephone interview from his office in Houston.
The AIM fund sold shares of Yamaha Corp., the maker of musical instruments and marketer of music components for mobile phones, during the past two months.
"We felt that one had had its better growth days behind it," said Sides, who has degrees from Bucknell University and the University of St. Thomas in Houston.
Sides and Holzer recently sold their fund's stake in SEB SA, the French maker of T-Fal pots and Krups coffeemakers. The company last week said first-half sales dropped 3.5 percent as retailers in France cut inventories and U.S. distributors sought lower-price products.
Lianhua Supermarket Holdings Co., China's biggest grocery chain, was another company it recently sold. The company has been adding stores to compete with foreign competitors. Lianhua Supermarket "had too many balls in the air," said Sides, who was concerned the expansion efforts would reduce earnings.
The AIM fund charges annual fees of $20 per $1,000 invested, compared with the average $14.61 for similarly managed funds, according to data compiled by Bloomberg.
AIM Investments and Invesco Funds Group are two U.S. fund units owned by Amvescap. In December, New York Attorney General Eliot L. Spitzer alleged that Invesco in Denver engaged in a "massive mutual fund scheme" by allowing privileged clients to frequently trade shares of the company's funds. Amvescap Executive Chairman Charles W. Brady in April said the company is in settlement discussions with regulators.