Liontrust GF European Strategic Equity Fund

The Fund’s A4 share class returned 11.6%* in euro terms in February. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 2.5% and 2.8% respectively.

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 Value Index rose 4.5% in euro terms, compared to the MSCI Europe Growth Index’s 0.5% rise.

This was a boon to the Fund’s value-biased long book, which significantly outpaced the MSCI Europe’s return and more than offset the short book’s slight detraction. At the end of the month the Fund’s net exposure stood at just over 70%.

On the sector front, financials (+11%) was the best performer in the MSCI Europe, followed by energy (+10%) and consumer discretionary (+5.4%). Some of the more defensive, bond proxy sectors were among the heaviest fallers, such as utilities (-5.9%), consumer staples (-3.9%) and health care (-3.1%).

The biggest source of positive attribution for the long book was the consumer discretionary sector. The likes of cruise operator Carnival (+43%), caterer Elior Group (+29%) and fashion company Moncler (+10%) were amongst the best performers.

Carnival and fellow travel company United Airlines (+32%) have been among the worst hit by the pandemic, with cancellations of cruises and flights due to the restrictions but shares in both companies traded higher in February as investors factored in a return to the pre-Covid world. Carnival took advantage of the higher share price by raising US$1bn in an equity offer, which it will use for general corporate purposes. United Airlines’ board, meanwhile, authorised the sale of 37 million shares. 

Moncler 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.

Another area of positive attribution was materials, where holdings such as Anglo American (+17%), Evraz (+16%) and BHP Group (+15%) all rose following a sharp rise in base metal prices. Commodity prices shot higher in anticipation of greater demand as the world emerges from the pandemic. The Bloomberg Base Metals Spot Price Commodity Index reached its highest level since 2011.

Temporary power company Aggreko’s (+39%) shares rose after confirming that it had been approached by TDR Capital and I Squared Capital for an 880p per share acquisition deal. The price represented a 39% premium to Aggreko’s shares at the time.

French duo BNP Paribas (+24%) and Ipsos (+21%) both published full-year results. Investment bank 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%.

Market research company Ipsos stated that like-for-like revenue should be higher in 2021 compared to 2020 and operating margins should rise as trends improved during the closing months of 2020. In the fourth quarter, organic growth returned to positive territory after declining 25% and 3.3% in quarters two and three respectively. This was particularly noteworthy given the strong comparable in Q4 2019. In the year as a whole, revenue declined 8.3% and organic growth was -6.5%.

Two of the few detractors from the long book were SimCorp (-6.0%) and Roche (-4.6%). 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 hit 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.

In the short book, one of the biggest detractors was a Dutch fitness company which secured a significant sum of additional financing to weather the impact from Covid-19. Another holding which saw its share price increase was a Norway based semiconductor manufacturer, which delivered fourth quarter results ahead of expectations.  

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

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

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

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.