£1.2bn top fund manager: ‘Ryanair nosedived – but I’ve bought more shares’

Ryanair remains more profitable per customer than its rivals, says Rory Powe Credit: Rex Features

Professional investors are tipping the Continent as one of the bright spots for 2018 as the Eurozone puts its problems behind it and outshines Britain and America.

Telegraph Money last spoke to Rory Powe, manager of the top performing £1.2bn Man GLG Continental European Growth fund, before the EU referendum.

Here he explains how Brexit has made Europe stronger, why he’s buying more Ryanair shares, and names the tech stock that’s trebled in value in less than two years.

Why are fund managers talking up Europe so much?

The positive sentiment is because European economies are recovering. The Eurozone grew by about 2.4pc in 2017 and should grow by the same amount in 2018. It is no longer a global laggard, it’s matching growth achieved in the US. Unemployment is declining, earnings are growing.

And the economic growth is not accompanied by inflationary pressures. 

Europe went through its own crisis in 2011-12. Never say never, but we are past the point where it looks like some countries might fall out of the Eurozone. 

Has Brexit had any impact on the portfolio so far?

It has had very little impact or influence on our activity. About 70pc of the portfolio is in global companies, where the UK is a relatively small market. Where companies are more exposed to Britain they’ve either got natural hedges to the pound or they’ve been able to raise prices. The decision to leave actually galvanised the EU and, paradoxically, made it less likely that other countries would crash out.

What is your strategy?

We apply an uncompromising approach to investing in companies with formidable competitive advantages – firms with the staying power to thrive in most economic circumstances. The fortunes of these companies do not rely on a strong European economy. About three quarters of the firms in the portfolio are valued at more than $5bn (£3.7bn).

When I took over the fund [in 2014] it had more than 200 positions and I cut them to around 30 names. There’s an intellectual bottleneck: at more than 40 it becomes difficult for me to really understand each company.

Are there any sectors you avoid?

Financials are under-represented. Too many firms are reliant on the underlying economies and their margins rely too heavily on interest rates. I want to avoid firms on the consumer front line as much as possible, as that’s where price compression is most evident.

Unemployment is still high and consumers are better equipped with price and quality transparency than ever before. That means they have the power and being on the front line is one of the most hostile places to be. That’s where Amazon is eating many lunches. 

What is your biggest bet at the moment?

Ryanair is my biggest position and it has struggled recently – but we’ve added to it. That’s a good example of where we’re expressing our conviction.

We think the reaction to its recent pilot rostering issue has been understandable but has been exaggerated. We don’t see its cost advantages being eroded materially – it remains more profitable per customer than its rivals.

What has been your most successful investment?

The Swiss firm VAT has contributed the most to the fund. It makes vacuum valves for semiconductors. Today’s market is about “miniaturisation” and that’s driven by demand from things such as mobile phones. VAT is the market leader, about eight times bigger than its nearest rival. We bought when it floated in March 2016 at below 50 Swiss francs (£38); it’s now roughly tripled to about 150.

And your worst investment?

Last year, Criteo, an ecommerce marketing company, was a very costly mistake. We invested in December 2016 and the share price has fallen by 40pc since then. I invested because it’s the leader in “retargeting”, an area of digital marketing.

But Apple made changes that mean about a fifth of Criteo’s revenue is likely to disappear. 

The lesson here is that when you’re up against a giant like Apple, it can move the goalposts and upend the business model. This is the problem with technology, it’s so fast moving. I’ve aggressively reduced our position.

Is your own money in the fund?

Yes, and my family’s. More than half of my wealth is in three funds across GLG.