Man GLG Continental European Growth is the most consistent IA Europe ex UK fund of the past decade, beating its sector average in every single one of the past 10 years, according to a study by FE Trustnet.
Of the 79 funds in the sector with a track record long enough to be included in this study, another six beat their average peer in eight of the past 10 years.
Performance of funds vs sector
Source: FE Analytics
Rory Powe, who has managed Man GLG Continental European Growth since October 2014, focuses on what he calls “multiple preservation” – meaning he primarily seeks companies that are unlikely to de-rate rather than likely to re-rate.
A statement from Man GLG said Powe is “determined” to invest in strong growth franchises through a focused research approach.
“While many fundamental investors will place emphasis on management teams, Rory prioritises company strength, growth dynamics and product roadmap,” it added. “He seeks strong business cases – analysing companies from the bottom up – rather than coming to them as an industry expert, meaning that companies are often overlooked by sector analysts.”
The companies that Powe buys tend to fall into one of two categories: ’established leaders’ and ‘emerging winners’.
Established leaders are “formidable market leaders in their industry, with clear roadmaps for earnings and free cashflow, and a five-year expansion path”. The manager seeks an average 10 per cent per annum potential upside from these names and 50 to 100 per cent of the portfolio will typically be invested in this category.
Emerging winners are high growth names “in the vanguard of a new or existing market which already demonstrate clear competitive advantages”. Powe seeks an average potential upside of 15 per cent per annum from these names. A maximum of 33 per cent of the portfolio will typically be invested in this category.
Man GLG Continental European Growth made 243.51 per cent over the 10-year period in question compared with 113.39 per cent from the IA Europe ex UK sector and 115.07 per cent from its FTSE Europe ex UK index.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The £1.3bn fund has ongoing charges of 0.9 per cent.
Tanvi Kandlur, an analyst at FE Invest, said that while Man GLG Continental European Growth is an excellent fund, it is too similar to another name on the FE Invest Approved Funds List, Jupiter European, to also warrant inclusion.
Jupiter European was the only fund of the six to beat the sector in eight of the past 10 calendar years that also outperformed Man GLG Continental European Growth from a total return perspective over this time. Its gains of 293.16 in the decade-long period were the highest in its sector, while Man GLG Continental European Growth finished in third place.
FE Alpha Manager Alexander Darwall, who heads up Jupiter European, focuses on selecting European companies with long-term growth potential regardless of the economic backdrop. He attempts to understand a company’s business model, strength of management and financial structure – preferring those that self-finance through profits to those with excessive debt – to build in a further safety margin.
The analysts at FE Invest said Darwall has built up an impressive track record in European equity investing, and his strategy and style of buying high-quality global companies has now weathered a number of different market environments.
“It is also reassuring to see that value has been added, by successful company selection, over and above that which we would expect from just buying a general basket of these types of companies,” they added.
“The fund could sit well as a core European equity holding, should investors believe that more globally oriented, higher-growth companies will continue to outperform a more balanced approach. However, the fund does contain a significant amount of company-specific risk which, when combined with the strategy’s bias, may make it unsuitable for some investors.”
The £5.3bn Jupiter European fund has ongoing charges of 1.03 per cent.
Two of the other funds that have beaten the sector in eight of the past 10 calendar years also made the list of 10 best performers over this time: Baillie Gifford European with gains of 207.96 per cent and Threadneedle European Select with gains of 185.64 per cent.
Performance of funds over 10yrs
Source: FE Analytics
Baillie Gifford European invests in high quality, well managed businesses that are able to grow significantly.
Its managers Stephen Paice, Moritz Sitte and Tom Walsh aim to buy shares in these companies cheaply and expect to hold them for a long time.
“Companies in which we invest will typically have a strong competitive position and be managed by owner-oriented people,” they said.
“Portfolio construction is team-based, with the overall weighting of stocks in the portfolio a function of the collective conviction of the fund’s managers. We believe this approach helps us to avoid some of the behavioural challenges of group decision-making.”
Baillie Gifford European is £453m in size and has ongoing charges of 0.59 per cent.
Threadneedle European Select is headed up by FE Alpha Manager David Dudding and Mark Nichols, who invest in quality growth companies that have a competitive advantage and in sectors with high barriers to entry.
The team at Square Mile Investment Consulting & Research said that although this fund is called Threadneedle’s higher alpha European (ex UK) equities proposition, it is not an aggressively managed fund and the portfolio is constructed with some consideration for its benchmark.
“The emphasis on quality and a company's competitive position does mean that certain areas of the market where there is a lack of pricing power, such as some of the more cyclically sensitive sectors, are typically avoided,” it said.
“Conversely, sectors where there are high barriers to entry and therefore dominant incumbents, such as consumer goods and healthcare, can see sizeable overweights.”
The £1.5bn Threadneedle European Select fund has ongoing charges of 0.83 per cent.