FE Invest has added the £1.4bn Man GLG Continental European Growth fund to its portfolios as a “direct replacement” for the top-performing Jupiter European fund. 
The discretionary managed portfolio provider has sold out of the £5.1bn Jupiter European fund after manager Alexander Darwall announced plans to step down and set up his own fund management business towards the end of 2019.
Jupiter European, which is the largest member of the IA Europe Excluding UK sector, has a stellar long-term track record. It is in the peer group’s top decile over three, five and 10 years, making a total return of close to 270 per cent over the past decade.
Darwall is a bottom-up stockpicker who looks for quality-growth businesses (or companies with strong business models, secular growth characteristics, sustainable returns on capital and credible management teams) and builds a high conviction portfolio.
This approach has paid off during the post-financial crisis period and has led to fund being very popular with both professional and private investors.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
However, Darwall stepped down from the fund at the end of September, with FE Alpha Manager Mark Heslop and Mark Nichols – who recently joined Jupiter from Columbia Threadneedle – replacing him.
Charles Younes, research manager at FE Invest, said: “Alexander has been instrumental to the success of the strategy and in the long term it will be difficult to know whether his success can be repeated.”
Heslop and Nichols both invest in a similar fashion to Darwall and Jupiter European’s portfolio is expected to continue to have strong growth and quality characteristics, along with a bias away from more cyclical areas of the stock market.
However, the FE Invest team have removed the Jupiter fund from their portfolios and brought in Man GLG Continental European Growth instead.
The Man GLG Continental European Growth fund has generated a 111.36 per cent total return since manager Rory Powe took over in October 2014. This makes it the highest returning member of the IA Europe Excluding UK sector over this time frame.
Performance of fund vs sector and index under Powe
Source: FE Analytics
Powe’s approach is very much in the quality-growth camp, with the manger building a high conviction and concentrated portfolio of “Europe’s strongest companies”.
The manager, who has 30 years of European equity investing experience, uses a process that starts with a qualitative screen that whittles down a universe of 3,000 investable names to around 150 stocks that can be researched further by his team.
Two types of company are targeted for inclusion in the fund: ‘established leaders’, which make up the majority of the portfolio and have visibility in revenues with an obvious expansion path, and ‘emerging winners’, which are high-growth names that tend to be vanguards in their industry.
Top holdings at the moment include German software company SAP, Danish bioscience firm Chr. Hansen and Italian sports car manufacturer Ferrari. It is overweight Germany, Italy, Denmark, Ireland and Sweden on a geographic basis, while being overweight consumer discretionary, industrials and information technology when it comes to sectors.
“Powe is a dedicated investment manager who learns from any mistakes and although the starting point of a qualitative screen is unusual it shows the manager’s dedication to the bottom-up process,” FE Invest’s analysts said.
“We like the concentration feature of the portfolio, at 30 to 40 names; however, the top 10 weights make up around 50 per cent of the portfolio with positions around the 9 per cent mark. This top-heavy weighting means some stocks can have a significant impact on returns, and as such the fund is a punchy way to invest in Europe.”
FE Invest said that Powe’s significant outperformance of the benchmark since he took over the fund is down to his “excellent stockpicking”. The fund has outperformed the sector in every calendar year under the manager and only lagged the index in 2016 and 2018 – which was the result of the value style beating growth and Powe’s style being out of favour.
In a recent update, the manager noted that the past couple of months have seem the value style start to outperform again and caused the fund to make bottom-decile returns for 2019’s third quarter.
“Difficult, risk-averse equity markets can raise the pressure to seek names lower down the valuation ladder. Of course, we are always on the look-out for wrongly priced outstanding businesses and we will pounce on low share prices when they are unwarranted,” he explained.
“But any quest for low valuations must not see us compromise on quality, could well be a false economy, and might easily increase the risk of earnings accidents. Instead we will go on backing those rare companies which are able to exert pricing power, gain market share and deliver rewards for all their stakeholders. Innovation and differentiation will lie at the heart of this.
“And if we remain disciplined about valuation, and continue to prioritise resilience and staying power in our investment criteria, we believe the portfolio has the attributes to fare well in the quarters and years ahead.”
Man GLG Continental European Growth has an ongoing charges figure (OCF) of 0.90 per cent.