Veteran stockpicker Franz Weis has added new names from the aeronautics sector to his €1.4 billion European equity fund but stressed this is not a play on the region’s airlines.
The airlines sector has proven popular with many of Weis’s peers in recent months, with both budget and upmarket carriers on the buy lists.
‘These stocks are not because we have a set belief about this sector; we have added them on a 100% bottom-up basis and on the merits of those companies,’ Weis told Citywire Global.
This has seen Weis open up positions in aircraft engine manufacturer MTU and equipment specialist Zodiac Aerospace. He added the respective German and French firms over the fourth quarter of 2013.
‘MTU and Zodiac are the best in what they do. MTU has a 40% market share and they don’t just develop the engine but they are then contracted to maintain and service the engines, which is a very stringent process given airline regulations and a source of repeat business.
‘Similarly, Zodiac does the interior of planes from the seat covers to the design of the cabins. This is again recurring sales, as airlines are now upgrading their planes at a much faster rate than before, so this gives us good visibility of future earnings.’
Weis said both positions are currently ‘minor’ bets in the portfolio, although he would be watching for opportunities to potentially add further.
In addition, Weis has reaffirmed his position in luxury goods company Dufry, which is benefiting from a boom in airline growth in emerging markets.
The retailer is positioned in many airports due to its operations in the duty-free market, and this is benefiting from upgrades to meet the demand for new flights.
‘We are not looking at this on a thematic basis, as airlines themselves are highly cyclical, but there are winners in the industries linked to it as the volume of air travel over the past 15-20 years has grown 5-6% per annum because it is becoming more and more affordable.’
Elsewhere in the 36-stock fund, Weis has gradually sold out of his holding in luxury goods brand LVMH. He sold down the stock in 2012 before fully exiting the position in 2013.
‘What we were seeing was a move to change it position in the high end goods industry and there was an element of brand dilution going on. The designs, to an extent, were becoming more understated which we do not expect to play well in emerging markets, where the brand is key.
‘They are still strong brands and good companies but we think it will take a couple of years to rebound to the levels we have seen previously,’ he added.
The Comgest Growth Europe Euro fund returned 49.95% over the three years to the end of January 2014. This compares with a rise of 25.64% by its Citywire benchmark, the FTSE World Europe TR EUR, over the same period.