Airline stocks might have turned into a hot investment as demand for air travel has taken off, but Allianz Global Investors' portfolio manager Andreas Hildebrand is wary that some firms might nosedive.
In 2016, global air travel demand rose 6.3% compared to 2015, according to the International Air Transport Association (IATA), a trade association that represents most of the world’s airlines.
Hildebrand, the growth-oriented portfolio manager of the $2.5 billion Allianz Euroland Equity Growth, said industry volumes might be growing at a rate of 1.5 times GDP globally, but there’s still a lot of supply keeping competition among European airlines very high.
‘Many airlines in Europe are struggling. Alitalia for example, the national Italian airline, is bankrupt probably every third year or every fourth year and then they’re saved by the government. [...] That [the airline sector] is an industry which is growing nicely, but the companies aren’t earning money,’ Hildebrand added.
Staying away from companies that depend on cyclical growth to expand, Hildebrand opts for companies experiencing structural growth that can deliver a double-digit return on investment rates, as well as solid cash flow and profit growth.
Hildebrand has held the European airline Ryanair since July 2016. The company is disrupting the industry and offers average fares 24% lower than its competitors, according to an Allianz GI presentation.
The fund has returned 24.39% in the past three years, while its Citywire-assigned benchmark, the MSCI EMU TR EUR, has risen 14.9%.
Formerly the deputy manager on the fund, Hildebrand took over as the lead manager in June from Citywire AA-rated Matthias Born, who is set to leave Allianz GI by September after 16 years at the firm.
The fund has been popular in Chile, as the country's six pension funds have poured a net $451 million into it so far this year, bringing their total investment in the vehicle to about $1 billion.
As of June 30, information technology, industrials and consumer discretionary ranked as Hildebrand's fund top sector allocations. In terms of companies, German companies SAP and Infineon Technologies, as well as Spanish travel platform Amadeus IT Group, took the top three spots.
Recently, Hildebrand has ditched stocks of specific luxury brands such as Hugo Boss in favor of digital disruptors such as German online retailer Zalando, which offers an array of brands to customers in 15 European countries.
‘Consumers are buying fashion online and basically, customers don’t go on a specific brand’s page but they might go to Zalando in Europe,’ he said.