Investing in Fun

Some guys have all the luck. Mark Greenberg gets paid a lot of money not exactly to have fun but to evaluate fun companies. As manager of AIM Leisure (symbol ILSAX for class A shares), he analyzes companies that run cruise ships and casinos, build and operate hotels and make and sell everything from liquor to movies. "I get to do all the fun stuff," Greenberg says.

He's been investing in the leisure sector full time for 24 years, the past 11 at the helm of AIM Leisure. "That's a lot of trips to Las Vegas," he says. He's been there at least 50 times, but insists that he doesn't gamble or drink.

All those trips have paid off. Over the past ten years, AIM Leisure (formerly Invesco Leisure) has returned an annualized 15%, beating Standard & Poor's 500-stock index by an average of seven percentage points per year. Those returns put the fund in the top 4% among all stock funds.

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He's done well lately, too. Over the past year through February 9, AIM Leisure returned 27% -- 11 percentage points better than the S&P, according to Morningstar.

Aside from being in a strong and broad sector, what makes him so good? First of all, he loves his work. "What I really like is the mental aspect of investing in the sector," he says. "Most jobs you can't do well unless you're pretty interested in the subject matter. I really do wake up in the morning, and say, "Oh good, the Financial Times is here."

He works hard. "Wherever I go, I'm compulsively thinking about my businesses. I'm looking at what shoes people wear. I'm reading trade publications. I'm learning how people spend their vacations."

And he has a long-term focus. "I spend very little time on how business is right now. I want to know how business will be in 2008 and 2009. I'm always looking for longer-term trends."

Greenberg invests in growing, often dominant companies, and he tries to buy their stocks at reasonable prices.

It's hard to disagree with Greenberg's bullishness on the broad leisure sector. "I can't tell you what will happen this year, but over time, economies grow and people spend more money on leisure," he says. "People who can figure out how to make consumers happy make money."

Of course, no fund is perfect. The biggest problem with AIM Leisure is that it levies sales charges (a 5.5% front-end commission on the A shares). What's more, although the consumer discretionary sector has generally been a strong one, it's not an all-weather sector. Bottom line: If you use a full-service broker, this is a terrific fund for some of your money, but not for an enormous chunk of it. (For more about Greenberg's fund and other broker-sold funds, see 10 Great Broker-Sold Funds.)

For the rest of us, it's worth taking a hard look at Greenberg's stock picks. On average, he holds a stock for five years or more. He tends to keep some of his favorites even longer. I remember visiting him in Denver in the late 1990s, and some of the stocks he liked then are still in the fund.

Take top holding Omnicom Group (OMC), the giant ad agency. The changing media environment makes this firm even more valuable to advertisers, not only in placing ads, but in providing marketing services. The firm has had the same top managers for years, and "Omnicom has done better than anyone else at winning new business," Greenberg says. Almost 6% of the fund is in Omnicom, and it has been a top-five holding for ten years.

Rupert Murdoch's News Corp. (NWS) is another favorite, accounting for 5% of the fund's assets. Its 20th Century Fox film division has the highest profit margins of any Hollywood studio, Greenberg says. And Fox is in first place among all television networks in the vaunted 18-to-49 age viewer group.

If you pick the right sector, Greenberg argues, it often doesn't matter which stock you buy. "Companies aren't all that different. In an awful lot of industries, most companies are generic. Their products are generic."

One of the sectors to watch, Greenberg says, is hotels. "When I was a kid, a vacation was a week at a cabin on a lake. Today, everyone who can afford it takes a big vacation."

Historically, the growth in hotel rooms has risen in tandem with the growth in gross domestic product. But in recent years, not that many hotel rooms have been built. And in cities such as Los Angeles, London and New York, some hotels have converted to high-priced condos. The upshot: hotel occupancy is rising and so are room rates. Yes, video conferencing is getting better, but business trips are still essential, and increased leisure travel will more than make up for any slack in business travel, Greenberg says.

Greenberg lists three hotel chains among his top ten holdings: Hilton Hotels (HLT), Starwood Hotels and Resorts (HOT) and Marriott International A (MAR). He won't say which he likes the best, but he owns slightly more Hilton than Starwood, and he has the least in Marriot.

He also likes the cruise lines: "If you survey people about vacations, almost everybody says they had a good time on cruises." Cruises are relatively inexpensive, appeal across generations, and the companies pay almost nothing in taxes because they're registered in tax havens. And like hotels, this is an industry with high barriers to entry. His favorites are Carnival Corp. (CCL) and Royal Caribbean Cruises Ltd. (RCL).

Steven T. Goldberg is an investment adviser and freelance writer.