Threadneedle European Select Z

Investment Process

The manager invests primarily in large and mid-cap continental European companies that operate globally. He looks for quality businesses which have competitive advantages and therefore high and sustainable long term returns, as he believes these are often mispriced by the market. He analyses competitive advantages through the Porter Five Forces framework, looking at factors such as barriers to entry and customer power to assess their business models. Stocks tend to enter the portfolio with high conviction. Risk control is one of the key elements of the process, with risk primarily controlled through the quality focus. The fund typically has high weightings in the consumer and pharmaceutical sectors, which have strong brands and patents respectively. By contrast, there are few holdings in the oil & gas, financials and utility sectors, where there is little pricing power. Ideas are generated by the European equity and broader teams, which work closely together. The process includes macro and thematic overlays, quantitative screens and company meetings. Despite the top-down elements, stock research is primarily bottom-up. Ideas are shared across the European team, but the manager's approach on this fund is longer-term and less valuation-sensitive than that of his colleagues.