Liontrust European Growth Fund

The Fund returned 5.1%* in sterling terms in February. The MSCI Europe ex-UK index comparator benchmark returned 0.3% and the average return made by funds in the IA Europe ex-UK sector, also a comparator benchmark, was 0.4%.

President Biden’s US$1.9 trillion plan fuelled investors’ inflation expectations and sparked a sharp rise in sovereign bond yields. The US 10-year yield rose 45 basis points to its highest level for a year. Biden’s fiscal plan passed through the US House of Representatives late in the month and if passed through the Senate, it would add to the already record amounts of stimulus from central banks and governments around the world. Moreover, the global vaccination efforts could mean economies open up once again in the near future, which would further add to the inflationary pressures.

The consequence for the equity market was a strong run for value stocks. Rising bond yields has a significant impact on the valuations of growth stocks who by definition are long duration assets: valuation models for growth stocks are very sensitive to a rising discount rate of their future assumed high growth. Value stocks by contrast are short duration whose profits are much more likely to benefit from a pick-up in inflation owing to the beneficial effects of inflation on pricing power. In February, the MSCI Europe ex-UK Value Index rose 2.1% in sterling terms, compared to the MSCI Europe ex-UK Growth Index’s 1.4% decline. Given the Fund’s current value tilt, this was a boon to performance.

On the sector front, financials (+8.0%) was the best performer in the MSCI Europe ex-UK, followed by energy (+7.2%) and consumer discretionary (+3.1%). Some of the more defensive, bond proxy sectors were among the heaviest fallers, such as utilities (-8.0%), consumer staples (-5.6%) and health care (-4.6%).

French investment banks Societe Generale (+31%) and BNP Paribas (+22%) participated in the financial sector rally and were the Fund’s biggest risers. Both also released results for 2020. SocGen’s results showed the tough impact of the pandemic with net banking income down 7.6% in the year as a whole. However, as with many institutions, there was an improvement in trading in the second half, with its French Retail banking division growing net income by 2.0% year-on-year in the second half. BNP posted only a modest decline (-0.7%) in revenue during 2020, with the Corporate and Institutional Banking (CIB) arm achieving strong growth of 14%. Operating expenses declined 3.6% but after taking into account the significant loan provisions of €1.4bn, operating income fell by 17%.

Italian fashion company Moncler (+8.0%) reported 2020 results which came in ahead of market expectations. Covid-19 had disrupted trading, but the company saw improving momentum in the fourth quarter with revenue up 8% year-on-year, driven by an expansion into China and growth in Korea and Japan. Operating margins also showed improvement during the second half of the year, up to 39% from 37% in the second half of 2019. Overall, revenue declined 11% over 2020 to €1.44bn, but this was ahead of the consensus forecast of €1.33bn.

Also among the best performers were energy companies Lundin Energy (+16%) and Tethys Oil (+19%), both reacting to the strong run in oil prices. Brent oil hit its highest level since the start of 2020 as the inflation trade boosted commodity prices.

Three of the few detractors from the Fund were Gaztransport & Technigaz (-9.4%), SimCorp (-7.8%) and Roche (-6.4%). Gaztransport & Technigaz disappointed the market with its outlook for 2021. The specialist in liquified natural gas (LNG) containers for shipping and storage said consolidated revenue is expected to be between €285m and €315m, compared to €396m in 2020 while EBITDA is forecast to be €150m-€170m in 2021 versus €243m in 2020. The company cited higher staff costs as part of the reason for lower guidance.

SimCorp’s shares fell following the release of its 2020 results. The investment software provider said order intake increased 16% year-on-year aided by 17 new client wins, but revenue remained flat at €456m and below consensus forecasts of €460m. For 2021, revenue is expected to grow between 6% and 11%.

Swiss pharma company Roche said competition from biosimilar treatments hit sales in its pharmaceuticals division by Sfr5.1bn in 2020. The pandemic also weighed on sales, particularly for those medicines which required visits to health practices and hospitals to be administered. Biosimilar competition is expected to continue to drag in 2021, but sales are forecast to grow in the low-to-mid single digit range over the full year.

Positive contributors to performance included:

Societe Generale (+31%), BNP Paribas (+22%) and Tethys Oil (+19%).

Negative contributors to performance included:

Gaztransport & Technigaz (-9.4%), SimCorp (-7.8%) and Roche (-6.4%).

Discrete years' performance** (%), to previous quarter-end:

*Source: Financial Express, as at 28.02.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 31.12.20, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Liontrust European Growth Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 

DISCLAIMER

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.