It’s not often that a fund manager uses props but Jeff Hyrich reaches across his office, grabs a spongy object the size of a hard-cover book, and presses it to his abdomen where he imagines a wound might be.

“You take this piece of foam, cut it to the size of the wound and stick a plastic membrane around it. Then you hook it up to a vacuum and it creates closure,” the manager of AIM Funds Management Inc. ’s Trimark Global Endeavour Fund says, flapping a few feet of surgical tubing from a device beneath his desk.

“First of all, it physically closes the wound through vacuum; second, it sucks up all the material fluids that slow the healing and create problems with infection,” he continues. “You get faster healing — three weeks instead of three months.”

This trademarked Vacuum As-sisted Therapy being illustrated by Hyrich is manufactured by Kinetic Concepts Inc., a San Antonio, Tex.-based company. Hyrich says it has changed the way surgeons tackle large wounds — from gunshot blasts, for example, or open diabetic ulcers. KCI is Hyrich’s top holding in the Trimark fund, at 6.5%.

Pretty exciting goings-on for an investment manager’s office, but the manager of the $1.6-billion fund, established in September 2002, has even more reason to be animated. The fund was the winner in the Global Small/Mid-Cap Equity Fund category at the Canadian Investment Awards last November. It returned 18.1% in the three years to Dec. 31, 2006, while its benchmark, the MSCI world index returned 11.3% in Canadian-dollar terms over the same period.

And, last month, Hyrich took over as the fund’s lead manager, a reward for the ever-greater back-up role he had been playing to Geoff MacDonald.

“If you look at the names in the fund, maybe slightly more than half are companies I’ve put in,” says Hyrich. “I have always had a fairly active role in the fund. Geoff gave me a long leash. So, the change is part of a natural growth.”

The Winnipeg-born Hyrich, who at age 31 is one of the youngest fund managers in Canada, graduated from the University of Manitoba in 1997 with a bachelor of commerce. He shipped his double finance and accounting degree straight to the Ontario Teachers’ Pension Plan Board in Toronto in 1997, for which he worked as an analyst covering steel, auto parts, and oil and gas while studying for his chartered financial analyst designation.

At the OTPPB, he met AIM managers, who lured him over to their company at the end of 1999. There, he covered some of the same sectors as a junior analyst and completed his CFA.

Hyrich’s stock-picking style is fundamentally value-oriented. He looks for companies with strong historical earnings growth, free cash flow and return on capital — the usuals — but then his penchant for props comes in.

“I like to buy great companies that slip on banana peels,” he says. “They’re temporarily out of favour or they miss a quarterly earnings estimate, or the sector or industry is out of favour.”

Hopefully, the target company is discounted by as much as 40%-50%. That way, Hyrich continues, he gets a “double-bagger.” Strong company management will usually usher the company’s stock valuations toward historical levels, which pleases Hyrich, and he’ll also get the underlying natural growth of the business.

He approaches global companies one by one, without a geographical sieve or an economic viewpoint. Hyrich ploughs through potential acquisitions’ company reports for their historical information, but never for buy-and-sell recommendations.

“A lot of it is good, old-fashioned, hard work. My dad said you can’t die from hard work,” Hyrich says. “Companies are like students; they leave report cards over time. Margins and return on capital over 10 years are usually fairly good barometers of a company.”

One or two companies will catch his interest, and he’ll add them to a 500-company watch list, which flashes on the computer screen in his office. He’ll check 52-week highs and lows, hoping to happen upon a banana peel.

Metzingen, Germany-based Hugo Boss AG slipped painfully on one between 2002 and 2003, when it introduced a women’s line of clothing, Hyrich says. The company, which traditionally occupied the lower end of the men’s high-end retail clothing market, had correctly identified a potential growth area; it had strong brand awareness among women, whose clothing market is roughly four times the size of the men’s market. But Hugo Boss badly botched the launch.

@page_break@“Return rates [on the clothing] were around 50%,” says Hyrich. “They had inventory issues. They had designed [the line] for a tighter fit than North American women were used to.”

Hugo Boss moved manufacturing back to Germany from Milan, Italy, where it had been based to keep an eye on the latest fashions. Now, the women’s line is the fastest-growing part of the company.

The stock had dropped from around 25 euros to nine euros. It was trading around six times earnings, with a 9% dividend yield, and it had proven for years that it could grow earnings 15% a year.

“So, we bought a lot, and since then the stock has risen to 40 euros,” says Hyrich. “We have trimmed, but we still hold it and it’s growing rapidly.”

KCI, the Texas company that makes Vacuum Assisted Therapy, similarly fell on hard luck when a small private company called BlueSky entered the market with a cheaper product.

Product-pricing pressure forced KCI’s stock price down. And KCI lost its footing again when it launched an expensive patent infringement lawsuit and lost.

“The stock dropped to US$25 from US$80,” says Hyrich. “We started buying at US$26.”

He says the global market for product is so high that competition from BlueSky doesn’t matter. This type of medical device has reached only 25% market penetration in U.S. hospitals; in Europe and Asia Pacific, where even greater penetration is still to be had, KCI has no competition.

Hyrich says his fund’s weighting is tipped heavily toward the lower end of the mid-cap stock range, which he defines as between $1 billion and $10 billion. He argues that even investors who believe they are already internationally diversified should take another look at his fund because his peers tend to be invested in companies at the large-cap end of the range.

“You have to be different from your peers if you want to outperform them long term,” he says.

Geographically, the fund has a heavy 50% weighting in the U.S. and 30% in Europe. Another 8% is in Mexico, there is a growing weighting in the Asia-Pacific region, which Hyrich eschewed until recently, and in South Africa, where he attended an investors’ conference last autumn.

“I think they had 80 investors there. I was the only guy from Canada, and only one or two of them were global investors. The rest were domestic or emerging-markets fund managers,” he says.

There he bought a holding in JD Group Ltd., South Africa’s top furniture retailer, which he expects will grow organically through acquisitions and by beating out the dozens of small retailers that pepper the domestic industry. The country is emerging from the dark days of apartheid, Hyrich says, and a growing black middle class is acquiring wealth.

Part of the fund’s success is due to its concentrated portfolio of 31 stocks, down from 38 a few years ago. Most funds of its size would hold double that number of companies. “It means we can take a big weight where we have conviction, but we also get to know our holdings better,” he says.

Most value managers point to Warren Buffett as their model, and Hyrich is no different, but he also names Peter Lynch, the famous Fidelity Investments Corp. manager, and his mentor, MacDonald.

Hyrich, who is married, says he reads business and investment books in his spare time. And these days, his 18-month-old son, Tristan, keeps him extra busy. IE