The RCM Allianz manager likes companies where there is strong evidence of structural growth drivers, which he says tend to fall under three main categories.
"It can be that a company is profiting from an underlying secular growth driver; it can also be a company has technological leadership in the products or services it is offering, which leads it to structural growth; or it can be the superiority of the business model that enables the company to deliver structural growth."
Winkelmann says Novo Nordisk is one such stock that benefits from both technological leadership and secular growth drivers.
"The number of people with diabetes is set to increase by 50 per cent over the next 17 to 18 years," he explained.
"Novo Nordisk produces insulin products and has a market share globally of some 50 to 51 per cent. A lot of its profits are driven by sales of its drug Victoza, which is a so-called artificial insulin that controls type-2 diabetes, but without any of insulin’s side effects, such as weight gain. It has lower production costs than insulin which means it can increase its market share and cash margins."
Winkelmann looks for companies that can grow over the complete market cycle, which is usually around three to four years. Although this means cyclical stocks tend not to fit in with his strategy, he says certain companies of this type have such a strong business model that they mitigate the effects of any market downturn.
"A good example of that is the Swedish company Atlas Copco, which delivers equipment to miners," he continued.
"The beauty about the business model of Atlas Copco is it has fully outsourced the production of the equipment it provides, meaning the cost base is fully flexible."
"In other words, if it observes any weakness in the order book, which might then lead to lower sales, Atlas Copco is able to switch off or reduce the cost base within seconds, meaning that profitability levels and margin levels can remain constant or even improve in tougher times, which enables Atlas Copco to come out of any downturn even stronger."
Performance of fund vs sector since Winkelmann took over
Source: FE Analytics
This strategy has stood Winkelmann in good stead since he took over as manager of Allianz RCM Europe Equity Growth in October 2009. Since this time the fund has returned 39.54 per cent compared with 9.55 per cent from the IMA Europe inc UK sector.
Despite running a Europe-focused fund, Winkelmann is relatively unconcerned by the prospect of further strife as a result of the sovereign debt crisis. This is not because of his faith in the monetary policy of EU leaders – he thinks the LTRO may do more harm than good in the long-run – but because so much of his fund’s earnings come from outside of Europe. Emerging markets alone now account for around 30 per cent of sales for the companies in his portfolio.
"Carlsberg, which is our biggest holding, gets 50 per cent of its earnings from Russia, while SAB Miller, another brewer, gets most of its earnings from Africa, Latin America and Asia," he said.
"We do have a small exposure to the Greek market, but would be well-protected in the event of a default. One of the companies we own, Inditex, which is the mother company of clothing retailer Zara, gets 2 per cent of its earnings from Greece."
"If it were to default, Inditex would probably just close all of its operations in the country. Although this would have a small effect on its short-term earnings, everywhere else it is growing like-for-like sales and it is expanding quickly in emerging markets, currently opening around 90 new stores a year, so it would only need to open a few more of these to offset any losses that stemmed from a default."