The coronavirus pandemic will "leave scars" on the European economy, which is unlikely to return to significant growth once the health and economic crisis subsides, according to manager of the £1.9bn AUM Man GLG - Continental European Growth fund Rory Powe, who has been adding to some of the fund's biggest positions in the continent’s largest brands in a greater focus on quality.
Speaking to Investment Week, Powe said that while economic activity should improve by the second half of 2020 and into 2021, he is "not optimistic" about the continent's prospects, with coronavirus-related issued compounded by structural issues such as an aging population and rising debt.
He added: "This recession, sadly, will leave scars and it will be difficult for the European economy to shake off the impact of this."
Powe estimates that 50% of the portfolio is vulnerable to the impact of the coronavirus to the extent that they could suffer throughout this year and into 2021, while the other half "will be largely unaffected by lockdown and the recession" and some may even be net beneficiaries.
At 35.9% as of the end of May, Powe's portfolio has a substantially higher allocation to consumer goods than the average of 16.9% in the IA Europe ex-UK sector, according to FE fundinfo.
Lockdowns across the continent have had a substantial impact on the consumer goods sector, with retail businesses unable to open to customers and some struggling with related supply chain issues.
However, Powe has been adding to luxury goods brands, such as top three holding L'Oreal, tipping them as best placed to outperform when the economy recovers.
Powe said: "Our luxury goods brands such as LVMH, which is a big position, are most likely going to be adversely affected by a lot of their stores being shut for a period of time, but also by the absence of the Chinese tourists, who have been a very important source of demand for luxury goods historically.
"Our luxury goods names have suffered this year but we have maintained our holdings in them because even though this is a difficult period, we have a lot of confidence in both their competitive and financial strength, and we think that customers will gravitate to high quality products [in the recovery].
"The luxury goods sector also does not suffer from the sort of far-flung supply chains you see in other businesses."
He added that many luxury goods retail businesses, such as Louis Vuitton, are better placed to reopen with social distancing practices in place because their stores typically only have small numbers of customers in at any given time.
Powe said: "Stronger brands like Louis Vuitton, or Christian Dior in the case of LVMH, will probably have gained market share during this difficult period, while weaker brands might have to downsize.
"A chunk of our portfolio is in the line of fire. But we are not fairweather investors or momentum investors, we are investing in companies for the long term."