(Bloomberg) -- Sometimes it’s the less glamorous parts of the stock market that can help a fund outperform.

That’s the strategy adopted by Daniel Avigad, manager of Lansdowne Partners’ $2.6 billion long-only European equity strategy. By betting on old-economy stocks such as industrials and electrical engineering, at least one of his funds has bested the benchmark index. 

Avigad said he has stayed away from Europe’s luxury and consumer-related stocks — crazes that fueled the broader rally last year. 

“Our basic premise is identifying cash generative business models that can return money to you and grow at the same time, and which aren’t wildly overvalued,” Avigad said in an interview in London. 

The TM Lansdowne European Special Situations Fund has gained nearly 14% in the past year, beating a 10.5% advance in the MSCI Europe Net Total Return Index. It has also outperformed 88% of its peers over that period with lower volatility. 

The fund counts French electrical power products maker Schneider Electric SE, construction group Vinci SA and tire manufacturer Cie Generale des Etablissements Michelin SCA among its top holdings.

European stocks have scaled record highs this year, caught up in the artificial intelligence euphoria that also powered US equities. In 2023, retail and technology were the best-performing sectors in Europe, while food and beverage, and miners declined. Industrials ranked near the middle of the pack. 

That scorecard, however, is now being reshuffled as investors worry that possible stagflation could cause central banks to delay interest-rate cuts. Lenders are in popular demand, while real estate is lagging behind. The rally in luxury goods makers has also faded on worries about a lackluster recovery in key markets like China.

“We have found it hard to be convinced that we can predict mass market psychology and how that may affect certain businesses, for example the fashion cycle in luxury,” said Avigad, who took control of the fund in September last year after Lansdowne Partners acquired CRUX Asset Management.

The fund is a UK-registered open-ended investment company (OEIC). Lansdowne’s long-only strategies also offer Dublin-registered UCITS. 

Avigad has recently reduced exposure to consumer staples on changing trends. High costs make firms such as Nestle SA less flexible, he said. Instead, Avigad sees opportunities in businesses that can ease Europe’s dearth of natural resources. Companies tied to electrification, healthy living and green construction make up over 40% of his overall portfolio.

The fund also invests in both growth and cheaper value stocks, and cyclical and defensive businesses. It owns banks like KBC Group NV and Intesa Sanpaolo SpA, as well as growing pharmaceuticals such as Wegovy-maker Novo Nordisk A/S.

The fund manager views sectors that are sensitive to regulation as risky and unpredictable. Avigad counts telecom as one of his “biggest mistakes,” noting that companies in the industry need to consistently invest to thrive but they face constant scrutiny over mergers and acquisitions. 

Avigad joined Lansdowne in 2005, when the company was essentially a hedge fund. The firm has since evolved into a more diversified asset manager, switching core strategies to long-only investing. He manages a third of the firm’s $7.8 billion assets.

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