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I say value,you say growth

Interpreting the difference between the big buzzwords in fund styles is far from black and white, reports KEITH DAMSELL

Is Toronto-Dominion Bank a value stock? Or a growth company?

It's a trick question - according to AIM Funds Management Inc., the blue-chip bank has a split personality: It's a little bit value and a little bit growth. The Toronto wealth asset manager holds significant positions in TD in both its growth-flavoured AIM fund family and its value-driven Trimark group of funds. It's a good example of the confusion between the two investing styles and the mix of philosophies that fall in between, from "deep value" stock pickers to "growth at a reasonable price" managers.

While financial advisers preach the merits of diversifying your portfolio, competition and the equity market's foibles have made it more difficult to navigate the ever-changing landscape of investing styles.

The reality is, value and growth mean different things to different people.

"Given the pressure on performance, it's getting harder and harder to be a purist as an investment manager. You are seeing a lot of blurring of the lines," said Dan Richards, a mutual fund marketing consultant.

Growth-style investing was best defined by the technology sector's heady bull run in the late 1990s: finding a stock with momentum and hanging on for the ride. Growth managers aren't necessarily looking to buy a stock at a bargain price; they are looking to future share price gains.

In general, growth funds hold a stock for a shorter window of time and there is higher turnover within the portfolio.

Value investing, meanwhile, is all about scooping up a hidden gem at a discounted price. Managers often have very specific financial criteria that factors in to stock buying and selling. The investment horizon is generally longer term in comparison to a growth fund.

If the planets are aligned correctly, a successful value fund will trade at a lower price-to-earnings ratio than the S&P/TSX index but will enjoy a higher dividend yield than the index, said Donald Reed, president and chief executive officer of Toronto's Franklin Templeton Investments.

The catch is, today's choppy equity markets have made managers in both camps a little anxious. There's much agreement the market is fully valued with few bargains for value investors or hot prospects for growth managers.

As a result, there's been some subtle redefinition of investing styles with managers raiding one another's traditional camps for ideas. For example, dedicated value manager AIC Ltd. is a big supporter of India's Infosys Technologies Ltd., a software services company that may look more at home in a growth portfolio. Similarly, dispassionate value investor Brandes Investment Partners & Co. made a bold bet on telecom in 2002, including a $433-million position in the shares of troubled Nortel Networks Corp.

"There's many shades of grey" between value and growth, said Martin Hubbes, manager of AGF Funds Inc.'s AGF Canadian Stock Fund. He is a self-described "GARP" manager, a middle-of-the-road style targeting under-valued growth stocks.

Ian Ainsworth, a senior vice-president at Mackenzie Financial Corp. spends his time hunting for growth stocks that one day, may be considered value equities.

Opportunity could be right around the corner. Red-hot income trusts and the high-priced resource sector reminds him of the late 1990s tech bubble.

It's hard to call a market peak but a "shake out" may be in the works, he said.

"There is always a certain part of the money that chases the latest trend," Mr. Ainsworth added.

"You try to look further down the road and try to get a sense two years from now, three years from now, could this stock be a value stock?" Dwayne Dreger, vice-president of communications at AIM Funds, concedes it is "very difficult to pin a management style on a manager.

"Some styles, at different parts of the cycle, do better than others."

Market volatility was a key driver behind industry consolidation, pushing value and growth managers together in order to meet the needs of investors, he said. For example, growth manager AIM Funds snapped up value-driven Trimark Financial Corp. in 2000.

"The power of the fund company is having the breadth of product that will weather any storm the market can throw at you," Mr. Dreger said.

Paradoxically, labels make little difference to investors, said Kate Warne, market strategist at Edward Jones.

Investors, large and small, just want a good stock-picker, she said.

"We worry less about whether someone is a value manager or a growth manager. Does the manager have a good process? Do they hold stocks that makes sense?"

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