The nimble giant that thrives on growth

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The Independent Online

Rory Powe, manager of one of the largest of all unit trusts, the £1.64bn INVESCO GT European Growth Fund, did not plan on a career in investment management. "It was largely an accident," he says. "I read history at university and I was slightly panicked about what I was going to do when I left.

Rory Powe, manager of one of the largest of all unit trusts, the £1.64bn INVESCO GT European Growth Fund, did not plan on a career in investment management. "It was largely an accident," he says. "I read history at university and I was slightly panicked about what I was going to do when I left.

"One route I considered was consumer goods, doing product branding for companies like Nestlé. Then I learnt more about fund management from a friend who was in the City and thought I would enjoy the analytical side of the business."

Studying history might not seem an obvious preparation for managing investment funds, but Mr Powe sees clear similarities. "The problem with being a fund manager is that you have to be versatile and develop expertise in lots of areas. Having studied history, I was used to collecting lots of information and trying to decide the salient points.

"Fund management is a similar discipline in that it is a combination of using primary research, from your own meetings with companies, talking to managers and so on, and secondary research, written by your colleagues or by third parties, such as stockbrokers.

"The skill is to draw this together and come to a conclusion. The great joy of fund management is that two people can use exactly the same information and one can conclude it represents a buy, the other that it is a sell."

Mr Powe joined INVESCO (the company merged with the fund management house GT last year) as a graduate trainee on its European team in 1986, and has been in charge of its flagship European Growth Fund since 1991. "When I started, Europe was an immature market, but there had been spectacular performance in 1984 and 1985 and some fund management houses were growing their European teams very fast. In a way, I was fortunate to come along at the right time, as the European markets were taking off."

He had some important lessons to learn. "As a trainee, I got the wrong end of the stick. I spent a lot of time on economic and political matters, like the impact of French election results or German economic statistics. That is not the approach we use now, which is much more stock-specific."

INVESCO GT European Growth is focused on its growth objective. "The fund invests in attractive businesses that are growing quickly and have carved out dominant positions in growing industries," he says. "We are investing in companies that I, or someone on the team, identified as having the potential to grow faster than the average for the universe we pick from. Decisions have to be made swiftly by the person managing the fund but I have a team of 25 looking at growing companies within Europe and that gives us a tremendous advantage."

The fund's holdings will tend to be in medium- and small-cap stocks, but not exclusively. "We are 'growth' investors, rather than 'value' investors, but we are loathe to pay too much for that growth. The important thing is that we have to have a conviction of the growth potential of a company that is greater than the market's view. This means we can hold major stocks. Nokia and Ericsson are the largest holdings because we believe their growth potential is ahead of the market average."

But it is more likely the fund will invest in companies yet to register in the major market indices. Mr Powe cites Intershop Communications, the fund's third-largest holding (4.1 per cent) behind Nokia (5.3) and Ericsson (4.6) as an example. "It may be we hold a company that is not making money, but whose product is clearly rapidly growing its market share, such as Intershop, which is a German e-commerce service provider. We are not necessarily looking for companies that are successful now, but ones which have the potential to become successful."

He adds: "My job as fund manager is to identify stocks that will be come part of the index. I will take a risk on investing on smaller companies only because I believe they will one day dominate their markets and the markets they dominate will themselves be growing."

Mr Powe's huge fund has only around 85 holdings. "Anything more than 100 holdings is not desirable, even with such a large fund. It is dangerous to set an arbitrary limit, but it would be unusual for us to have more than 100 stocks. Although diversity is a good thing, you do not want to dilute the portfolio and it is difficult to keep on top of more than 100 companies at one time."

And size is no barrier to delivering growth. "I would never use the fund size as an excuse for poor performance," he says. "If it underperforms, it is my responsibility. Performance in January was very strong, but from February to July the fund underperformed. The fund has remained underweight in deep cyclical companies whose fortunes depend upon world growth. Many such companies appear to be fully valued yet with little in the way of pricing power. We stuck to our guns and over the past three months growth stocks have bounced back with a vengeance." Which is why the fund continues to concentrate on less well-known companies.

"My job is to make money for the unitholders and I don't believe investing in the index is reducing the risk. Arguably, the index is higher risk, because it is made up of companies that have already arrived. Many of the big index stocks, those in the banking sector, are not best placed to exploit the opportunities of the Internet and e-commerce and it is our job as growth managers to anticipate those companies which will be in the index in five years."

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