A unit trust aiming for positive returns regardless of movements in pan-European stock markets.
The Liontrust European Absolute Return fund is a UK authorised unit trust managed by James Inglis-Jones and Gary West using the Cashflow Solution investment process. The aim of the investment process is to buy companies with strong cash flows that deploy cash prudently and which the fund managers consider to be relatively cheap. The managers short those stocks with weak cash flows and which are relatively expensive.
How do James and Gary find these companies? As the name of the process suggests, cash flow is key. They use published report and accounts to find companies generating lots of cash and investing prudently. They want to invest in these businesses because in their experience strong company cash flows after investment spending provides a valuable margin of safety that is often undervalued and underappreciated by investors, most of whom tend to be more focused on forecasting future profits.
Conversely, James and Gary short companies that generate poor returns on cash invested and spend heavily on ambitious investment programmes for future growth. Such companies often fall short of the high expectations of analysts and investors who fail to weigh the risks of such heavy investment adequately.
James and Gary use two proprietary cash flow ratios to rank companies in their investment universe from best to worst. One ratio measures the degree of cash generation and cash invested and the other measures the attractions of how the market values those cash flows. They only research the report and accounts of companies that fall into the best 20% and worst 20% of their universe according to these two ratios. James and Gary use the report and accounts to understand the context of the company managers’ investment decisions and cash flows in order to make their stock selections.
From this forensic analysis of company cash flows, James and Gary select stocks for portfolios. Their portfolios are equally weighted with a focus on maximising return and controlling risk. The Liontrust European Absolute Return Fund, for example, is designed to provide better than equity market returns with significantly lower risk and low correlation. This is achieved by matching investments in attractive companies with short sales in unattractive companies. The returns generated by their portfolios have demonstrated clearly that their selection from the best 20% of companies on their cash flow ratios generates good investment returns whilst their approach has also been adept at revealing companies that generate profitable short sales.
Why invest in Liontrust European Absolute Return Fund?
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Experience
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Gary West and James Inglis-Jones have 32 years of combined experience in managing equity portfolios, with 5 years’ experience in short trading.
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Process
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The Fund is managed in accordance with a tried and tested investment process, The Cashflow Solution, researched and documented by the managers at Liontrust.
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Performance
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Gary and James have a proven track record of returns from both long and short investments in their existing European long-short portfolio.
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Discipline
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Careful portfolio risk controls to deliver consistent market-neutral returns with low volatility.
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The Fund holds 50-80 companies, with a typical position size of 3%. The Fund’s performance may not move in line with general market trends; it may not fully reap the financial benefits that exist in positive market environments. The price of units in the Fund and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally subscribed.