GLG’s Powe: ‘Going domestic’ in Europe more attractive as region continues to surprise

Domestically focused businesses in Europe are increasingly coming to the fore as the region continues to surprise on the upside despite pessimistic forecasts, Man GLG’s European fund manager Rory Powe has said.
The strength of the European economy has been under scrutiny in the wake of Brexit, with the UK’s vote to leave causing fresh speculation about the Eurozone’s health now that its second-largest economy is splitting away.
However Powe, who has been in charge of the £520m^[1] Man GLG Continental European Growth fund for two years, said concerns over the outlook for European GDP growth ignore the prospects for companies based there.
The manager, whose focus on businesses with competitive advantages has seen the fund return 71.63% since he took the helm – versus the sector average return of 28.74%^[2] – said he is investing in a number of domestically focused companies within the region which he views as benefiting from country-specific trends.
“We have had a global bias within the portfolio for some time, but a number of the recent additions to the portfolio are more domestically oriented,” said Powe.
“The European economy is in better shape than feared, and years of under-investment is now creating a plethora of opportunities. Coupled with emerging signs that individual governments are more open to reform and a relaxation of fiscal austerity, there are a number of positives for investors to focus on.”
Powe said the weighting to domestic names in Europe within his portfolio is now around 27%, with the remainder of the 34-stock fund invested in businesses he classes as global in nature.
New stocks Powe has added to the portfolio as part of the switch to domestic names include Dalata, the Dublin-based hotel group.
“Dalata, which operates hotels in Ireland, is a beneficiary of the general under-investment in Europe in recent years,” Powe said.
“In Dublin there is a clear shortage of hotel rooms, with demand outstripping supply, resulting in higher room rates. Having used the property crisis to buy up additional hotels cheaply and refurbish them, I think Dalata is in an enviable position- to benefit from this situation.”
Powe has also added Spanish airport stock Aena to the portfolio, and increased the fund’s weighting in Xing, Germany’s answer to LinkedIn, as the Eurozone’s powerhouse economy continues to thrive.
“Xing is already extremely profitable in Germany, but with unemployment so low in the country, there is now a real shortage of skilled workers available,” Powe said. “This means companies are increasingly having to turn to businesses like Xing to access suitable candidates for positions.”
[1] As at November 2016
[2] According to Lipper, between 30/09/14 and 7/10/16 the Man GLG Continental European fund professional ACC C GBP share class has returned 71.63% net of fees, versus the IA Europe ex-UK NR total return of 28.74%. Past performance is not indicative of future results. Returns may increase or decrease as a result of currency fluctuations.