Fun and Games -- and Profits


By James A. Anderson Mark Greenberg gave up golf a couple of years ago -- "it takes too long to play" -- but still collects rare books. What free time he has each week after traveling for business and managing a $574 million portfolio he spends chasing after his two young children.

Greenberg doesn't exactly fit the profile of someone you'd expect to keep close tabs on what the U.S. does for fun. But that's what he's paid for as the head of Invesco Leisure (FLISX), a sector mutual fund that invests in a wide array of consumer stocks.

His stock-picking abilities have earned Invesco Leisure a spot on BusinessWeek Online's A list of equity funds and have kept his fund on top of Morningstar's ranking of mid-cap blend funds. Its 29.5% average annual total return over the past three years earns it top marks for its class, and its 24.7% average over five years places it No. 3 in a 222-fund category. Those are impressive numbers, especially when you consider they take into account the fund's -8% return for 2000. But things look a lot better than they did a year ago: His portfolio is up 8.7% year-to-date.

JEWELRY TO TOYS. Greenberg bills Invesco Leisure as a wide-ranging play on consumer goods and services. "I define the group I invest in as companies that make goods and provide services to enable people to do things they want to do, not things they have to," he says. Those parameters allow him to invest in a cross-section of 500 stocks that range from entertainment to jewelry to toys. On Greenberg's watch during the past four years, Invesco Leisure has taken stakes in brewer Heineken, gaming company International Game Technology, publisher Harcourt, and media giant Time Warner.

As wide as his boundaries may seem, Greenberg stresses there are limits. During the past year, for instance, he fought the temptation to broaden his vistas and include shares from a number of far-flung industries that beat the market, including the energy and finance sectors. "I guess you could say people need to buy gas to fill their tanks to drive off on vacation or they have to stop at the bank to get money to shop, but I see the fund as more focused than that," he says.

In industries he does include, Greenberg typically targets companies whose earnings are projected to grow 50% faster than the overall market. Roughly speaking, that sets his cut-off at an average annual increase of 10%, vs. the S&P 500's historical average of 7%. In addition, he aims to get in at a price-to-earnings multiple that's below the market.

BEER BLASTS. Finally, Greenberg says he looks to hold a stake for three to four years and is willing to make frequent visits to a company to check up on management. That stance has kept Invesco Leisure's portfolio turnover rate at a relatively slim 35% a year and held the fund's expense ratio to a below-average 1.4%. By comparison, Morningstar reports that the average mid-cap blend fund has a complete makeover every 12 months and an expense ratio of 1.5%.

One of Invesco Leisure's best plays in 2000 was beer: Holdings in Anheuser-Busch, Holland's Heineken, and other brewers make up about 6% of Greenberg's portfolio. "At the end of [1999], with the Nasdaq doing well and the Internet craze in full gear, it seemed that the market was dumping some of the group's steadier names," recalls Greenberg. "This group has done well delivering on earnings and has weathered the market's downturn possibly because it lacks a connection to the Web." Anheuser-Busch had a return of 29.4% in 2000.

Hotels and gaming have done well for the fund, too. The dominant player in the slot-machine business, International Game Technologies, which constitutes close to 3% of Greenberg's holdings, posted a 125.8% total return in 2000, thanks to casino expansions in Las Vegas and elsewhere. Hotelier Marriott, which turned in a 30.2% total return in 2000, is a stock Greenberg likes now. "The company is very profitable, has a great brand name, and is really good at what it does," says Greenberg, who started buying into the stock last March.

Better yet, he says, Marriott isn't resting on its laurels. It's adding rooms and sprucing up facilities. "Here's a company that has 7% of the rooms in the country, plus 20% of the rooms under construction, a sign that Marriott's working to leverage its name," he points out.

He thinks Mattel is a real underperformer and has great faith in its new CEO

One of the fund's biggest disappointments is AT&T Liberty Media, a long-time holding that tumbled more than 50% in 2000. Liberty, which is AT&T's tracking stock for cable television programming holdings acquired from TCI, had a rough go in 2000 as investors worried over a slowing economy's effect on ad revenues in 2001. Greenberg says he's still impressed by the company's brands, including Discovery Community and the Learning Channel, and its one-third stake in Black Entertainment Network, and he has been adding to his position as the stock has been pummeled.

"MORE FOCUS." One of Greenberg's favorite bets is Mattel, which makes up just over 3% of his portfolio's weighting. "Mattel is probably the biggest underperformer over the past five years," he says. "But I sense there's [now] more focus at the company." Greenberg began a series of visits to the company's headquarters outside of Los Angeles in May and started buying into Mattel when the stock was hovering around $12.50 a share.

He has made it a point to keep in touch with CEO and Chairman R.A. Eckert ever since. "Eckert is moving the company out of unprofitable businesses, and has it focused on making money rather than generating sales for sales' sake. That's a sign that he's serious about pushing profit margins up and regaining the confidence of workers," he says. Another good sign is Mattel's October, 2000, sale of The Learning Co., the software maker that was a drag on the corporation's earnings and margins.

With leisure spending so dependent on the well being of the economy, 2001 could be a big challenge for the Invesco fund. S&P entertainment analyst Tom Graves says a drop in gross domestic product growth from 5.4% in 2000 to a projected 3.1% in 2001 is sure to have an effect on the sector's stocks. "My sense is that things are softening for media companies and for the portion of the entertainment industry whose fortunes are tied in the advertising environment," he says. "I'm more bullish on gaming shares, which I think are generating good cash flow."

ALL BUSINESS. As for toys, Graves says the major names in the group are struggling to keep kids' interest. "Children are growing up faster and spending less time with traditional toys," he points out. "The future is much more software-based, and that's where a big company like Mattel has had trouble."

Greenberg, though, is sticking to the formula that has worked for him. "A lot of investors are following the momentum of earnings from quarter to quarter," he says. "But I'm concentrating on the long term. Sure, I'm looking at [earnings] as a sort of report card, but I'm not going to start trading in and out of stocks." Greenberg is all business -- even if part of his business is figuring out what you and I do for fun. Anderson follows mutual funds for BusinessWeek Online from New York


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