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Man Group-GLG fund manager Powe says it has been an average year
Thursday 08 Dec 2016 Author: William Cain

Man GLG Continental European Growth (GB00B0119370) fund manager Rory Powe insists he’s had a pretty mediocre year in terms of stock picking, despite the fund rising nearly 17% in value.

Much of the fund’s gain year-to-date is related to its investments in Europe which have increased in sterling terms but stayed relatively flat on domestic exchanges in Europe.

But Powe is still pretty close to the fund’s benchmark, which has advanced around 18.6% over the same period, and long-term returns are strong. The fund is in the top 25% of funds in its category over the last five years.

Funds

Downside risks

After an eight-year stock market bull run and wobbles in the market over recent months Shares is keener to hear how the fund might perform in a tough market.

Funds managed by Powe previously struggled in the dot.com bubble and another had to be closed in the crash of 2008 because of investments in illiquid stocks.

Lessons have been learned, Powe says. Investments are focused on good quality companies in two categories: Established Leaders and Emerging Winners.

Powe now runs a cap on the riskier Emerging Winners category at 33% of assets and these stocks currently make up 20% of the portfolio. Liquidity of underlying positions is also monitored more carefully.

‘My experience as a fund manager – some of it in difficult periods – has taught me to be more and more insistent on investing in stocks of the highest quality and that is about investing in these Established Leaders which have clear competitive advantages,’ says Powe.

As well as a cap on Emerging Winners, Powe is also more discerning around which stocks meet the criteria. ‘Concept stocks’, those with a great story but no earnings, are generally avoided.

‘They need to be in pole position in their markets,’ Powe adds.

Investors also need to remember that Powe is managing to a ‘growth’ mandate which means performance should only be measured against that category. In the last few months ‘value’ funds have started to beat ‘growth’ and ‘momentum’ styles.

Powe cannot suddenly change styles to capture this change in the wider market because of the fund’s growth mandate. Investors in the fund are taking a view that growth stocks will do well and that Powe’s stock-picking will mean the fund’s returns are better than the average ‘growth’ fund manager, which it has been in the past.

With an initial 5% charge to retail investors on new money invested as well as an ongoing charge of 1.65% of assets, it is not cheap either.

Swindon, United Kingdom - May 11, 2014: Pandora carrier Bag on a white background, Pandora is famous for its Bracelets, Charms and Jewelry

Affordable luxury

Mass market designer, manufacturer and retailer of jewellery Pandora (PNDORA:CPH), listed in Denmark, is the fund’s top position at 7.5% of assets. Powe’s depth of knowledge on the business models of stocks owned by the fund is exceptional. In Pandora’s case, the key element of the investment thesis is affordability with average sales prices at around £40. Pandora’s products are luxuries at reasonable prices and its brand is recognised the world over.

Scale is another competitive advantage in both production and sales. Pandora employs 11,000 workers in Thailand where products are manufactured and individually finished. A new facility in the north of the country will open soon. Retail outlets are increasing at around 300 per year and Pandora’s sales mix is shifting from unbranded to branded sales, driving top-line growth of around 20% in recent years.

ryanair-aircraft-(1)

Low cost carrier

Airline Ryanair (RYA) is a stock Powe has held in various funds for a decade or more and represents 7.2% of the growth fund’s assets. The fund manager highlights its number one market share in short-haul European air travel and industry-leading cost base at around €28 per passenger (excluding fuel) versus EasyJet (EZJ), Wizz Air (WIZZ) and the flag carriers at above €40.

Ryanair’s scale also means it has bargaining power with airports which want to secure the airline because of the volume of passengers it pulls through terminals.

‘In the case of Pandora and Ryanair (RYA) we can see a road map of growth,’ says Powe.

‘We do not want to invest in companies where it relies on the general economy or the shape of the yield curve. We want companies that are driving their own destiny.’

Funds table2

Other key picks

Powe’s third-largest position is Paris-listed Essilor (EI:EPA), a designer and manufacturer of glasses and contact lenses, but in our interview Powe focuses more on Christian Hansen (51C:FRA) which at the time was in the number three slot.

Christian Hansen has similar investment characteristics to Pandora and Ryanair in that it is a market leader in what it does, in this case the production of cultures, enzymes probiotics and natural colourings for the food industry. Key strengths include double digit top-line growth last year, pricing power and its ability to innovate.

‘We are confident it can grow sales between 5% and 10% a year out to 2020 and we are comfortable they can grow at a decent rate beyond that as well,’ says Powe.

‘We like that they are selling essentials, it’s repeat business and not particularly economically sensitive.’

Investments are chosen based on financial metrics and price target forecasts three years out into the future.

‘Sometimes we will make mistakes if companies’ financial results in the future are not what we expect them to be,’ adds Powe.

‘Currently our companies are very good at delivering strong growth in net profits and also converting it into free cash flow and that’s pretty good compared to the rest of the market.’


 

Rory Powe

Rory Powe, Fund Manager

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