Manager of the £1.3bn AUM Man GLG Continental European Growth fund Rory Powe has slashed the number of companies in the portfolio's investment universe and moved to a higher conviction approach amid an uncertain outlook for European equities.
As part of a more cautious outlook for the coming year, amid a decelerating global economy and "fragile" consumer sentiment, Powe (pictured) explained he has lifted the threshold for inclusion in the fund with a focus on quality.
He said: "We have cut the size of our ‘hinterland' from over 250 stocks to less than 150 and we currently own only 30 stocks in the portfolio, with the top ten holdings accounting for more than 55% of the fund.
"Central to this is being high conviction in names that do surpass a high quality threshold. We have been raising the bar further of what we mean by this."
Expected growth in the Eurozone has suffered in the past year, amid what the European Commission warned in "uncertainty and numerous, interconnected risks".
The average EU27 nation - the remaining EU member states after UK exits the bloc - saw growth of 2.2% in 2018, with this forecasted to 2% and 1.9% in 2019 and 2020 respectively.
Amid this backdrop, Powe is concentrating on companies with consistent, repeatable earnings in the consumer space.
He explained: "We believe, the consumer is more demanding than ever on price and quality, and will behave very differently to the past."
"The consumer stocks we own must therefore have something sustainably special and differentiated about them, and now is not the time to compromise on quality.
Powe added that the fund is also finding "increasingly rare pricing power in the business-to-business world" within companies with "extraordinarily strong competitive positions which are defendable for many years" as well as offering added value to their business customers.
He said: "For a company to make it into our portfolio, it must have competitive strengths which we view as formidable, it must be serving an end-market with structural tailwinds, and it must be entering a five-year period which can be described as its ‘imperial phase'."
The Continental European Growth fund has trailed the IA Europe Excluding UK sector over the past year, losing 3.5% compared to 1.4% to 21 March, according to FE. However, it has returned 38.8% and 89.6% over three and five years respectively, compared to the sector's return of 31.6% and 38.2% over the same period.