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Ferrari powers AAA-manager's GLG European fund

Ferrari powers AAA-manager's GLG European fund

Economic uncertainty is still rife especially in Europe, however, Citywire AAA-rated Rory Powe sees one constant rising above the noise: ‘the rich get richer’.

He is not wrong, according to the latest Organisation for Economic Co-operation and Development (OECD) figures, the top 10% of the wealthiest households hold 50% of the total wealth of 35 member countries. This is in stark contrast to 3% of wealth held by the bottom 40% of households.

‘I suppose the rich are getting rich, we may not welcome it, but the fact is there is this ongoing polarisation.’

Although this form of demographic change has for most of history caused uncertainty, Powe has distilled one element of the market that is set to gain from the super-wealthy: luxury goods.

For Powe’s Man GLG Continental European Growth fund, luxury goods are not simply a safe place to park one’s money – Powe sees some significant opportunity for strong returns.

‘It is not a case of me saying I like luxury goods so much as it is that we have found a number of luxury goods companies where there is something going on that is very exciting.’

For this exposure Powe (pictured) has looked towards Italy – a country that is not on top of most European fund managers’ lists of the best place to invest.

‘Italy is a rich hunting ground when it comes to luxury goods,’ explained Powe.

He is significantly overweight Italy at 16%, which is the most heavily invested country in his fund.  

Making up 4.55% of his fund is a company that is perhaps more than any other synonymous with Italy and that is the luxury car manufacturer Ferrari.

‘Ferrari’s revenues last year were just over €3 billion (£2.7 billion) if you look at that number compared to Gucci’s revenues last year of approximately €4 billion. Given how powerful the Ferrari brand is and how recognisable it is globally, and what it stands for in terms of iconic Italian design and engineering skill, we think there is room for those revenues to grow.’

However, Powe notes that Ferrari needs to toe a thin line so as not to overleverage the brand and dilute it. He adds that he has faith that Ferrari chief executive officer Sergio Marchionne will not let this happen.

In spite of these worries about diluting the brand, Powe thinks Ferrari has significant slack to increase its output.

‘They sold approximately 8,000 units in 2016. Cars and parts of cars represented 70% of their revenues and they have got the capacity to grow that number of units. We are modelling for them to grow the number of units sold by about 4% each year.

‘Currently, they are operating at between one and one-and-a-half shifts, whereas they could operate at three shifts. So there is a lot of capacity headroom at both [plants in] Modena and Maranello.’

As Powe’s overweight suggests, Ferrari is not the only company he is excited about in Italy. He has a just over 5% investment in luxury alpine wear manufacturer Moncler.

In 2016, the retailer saw its revenues go above €4 billion for the first time, Powe pointed out, adding that the business managed to grow its revenues by around 18% last year, and in the first six months of 2017 its revenues grew by a further 17%.

‘There are a number of reasons for this,’ Powe explained. ‘One is they only have 190 mono-brand directly owned Moncler stores, which is a low number versus their luxury retail peers, so they are not guilty of having proliferated the number of stores they have. Indeed, there is capacity
for them to add 15 new stores and on top of that we think the average size of their stores can grow.

‘In the past, Moncler has had a shortage of what people would call “flagship stores” – really Paris was the only one.

‘In the last year, they have opened on Bond Street, they have opened on Madison Avenue, they have opened on Ginza in Tokyo and their Harbor City store in Hong Kong has been expanded quite significantly.’

Powe highlights that on top of adding new stores and expanding older ones, the brand is investing in improving single store sales through staff training.

‘Moncler already has very high sale densities, and we think they can maintain those and indeed grow that sale per-square foot by becoming better retailers.’

Over the last three years to the end of July, the Man GLG Continental European Growth fund tops the Europe ex-UK sector having returned 97.2% more than doubling the sector average of 47.8%. 

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