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Liontrust SF European Growth Fund

Q1 2021 review
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Fund returned -0.6% over the quarter, underperforming the 2.5% from both the MSCI Europe ex-UK Index and the IA Europe ex-UK sector average (both of which are comparator benchmarks)*.

Ongoing struggles with vaccine rollout may delay an economic rebound in the EU, spilling over into political sabre-rattling. Pace of recovery, inflation and interest rates are at the forefront of investors’ minds but, from our long-term perspective, we continue to believe a well-diversified portfolio with multiple thematic drivers and high-quality companies is the best way to navigate challenging macroeconomics.

In recent months, we have seen a recovery in some of the more cyclical sectors (such as resources and consumer discretionary companies like miners and auto original equipment manufacturers). These more cyclically sensitive, statistically cheap and, dare we say, lower-quality companies have outperformed our growth and quality names. For the long term, however, we are confident our process of investing in high-quality, high-return businesses with a tailwind from enabling a cleaner, healthier and safer economy will continue to produce superior results. Over the life of the Fund, we have seen many periods of ‘value’ outperforming; during these periods, we stick to the process and try to block out short-term noise.

We have learnt over the last 20 years that high-quality businesses companies with structural demand, pricing power and strong balance sheets, that will continue to grow and reinvest earnings for the next five and 10 years tend to be mispriced by the market. Our process focuses on sustainability, growth and returns and such a longer-term horizon, beyond the majority of market participants, enables a powerful compounding effect that shorter-term investors miss.

In Q1, various familiar names featured among our top contributors, including semiconductor companies ASML and Infineon. ASML published Q4 and full-year results in January, with fourth-quarter sales of €4.3 billion, above previous guidance, due largely to additional DUV shipments. For 2021, the company said it expects another year of strong growth, with the buildout of digital infrastructure and continued technology innovation relevant to the consumer, automotive and industrial markets. ASML has been in the portfolio for over 10 years and shows the value of patient compounding.

National Express has also been one of our top names since we added the stock to our European portfolios under our Making transport more efficient theme in Q4, on the back of good fundamentals and an attractive valuation. We think the company can take market share from weakened competition and an accelerated shift to outsource more transport services. The environmental advantages of public transport are an important factor in reducing emissions, which, along with urbanisation, should also boost growth longer term.

Elsewhere, access solutions specialist Assa Abloy was also among our strongest holdings, with the company held under our Building better cities theme and specialising in mechanical and digital locks, security doors and automated entrances. Assa released its annual and sustainability reports for 2020 over March, with the former revealing an operating margin in Q4 at target level and a record high operating cashflow for the full year, despite the challenges presented by the pandemic. On sustainability, the company said it had exceeded the majority of targets for health and safety, energy, water and materials efficiency in the 2015-2020 period and has set new goals, including halving emissions by 2030 and reaching net-zero by 2050. 

Materials technology business Umicore also has a good quarter, with the shares continuing to benefit after the company upgraded its 2020 guidance in December. Revising adjusted EBIT to around €530 million for the full year, up from the previous expectation of €465-€490 million, the company said this reflected stronger-than-anticipated performance in November and December in its Catalysis and Recycling areas.

Over Q1, several financials (DNB, Svenska Handelsbanken, Axa, and Ringkjøbing Landbobank) were among the strongest contributors as the sector continued to enjoy a strong spell of performance as a ‘value’ part of the market. Among these, we see DNB and Svenska as cheaper, trading on 1x and 1.1x book respectively, whereas Ringkjøbing Landbobank has moved towards our view of intrinsic value so we reduced our holding. We also continued to see strong performance from Q3 2020 addition Avanza, under our Saving for the future theme: we have covered this investment platform in recent commentaries but note its 2020 results showing net inflows and customer growth more than doubling over the course of last year. The company releases data monthly on new customer numbers, inflows and trading volumes, and continues to surprise us with its growth and engagement levels of the customer base. Although Avanza is the dominant platform in Sweden, there is an ample runway for growth ahead: it has a strong foothold in the country’s shares and mutual funds space but less than 3% of savings accounts and 1% of occupational pensions and insurance.

Among weaker holdings, Puma, exposed to our Enabling healthier lifestyles theme, had a tough period despite reporting resilient performance in 2020. Remarkably, the company narrowly grew revenues overall despite some months being down over 50% relative to 2019. This is really due to one factor – respect for the supply chain. Puma’s management team decided not to cancel orders for the first half of the year, honouring all its orders, paying suppliers in full for their products and ensuring people in the supply chain were not let go as a consequence. This paid dividends in the second part of the year with rebounding demand in Asia and America as well as in the e-commerce channels. The company has been cautious in its outlook for 2021 profits with rolling lockdowns impacting sales, which contributed to some of the selloff in Q1, alongside the rotation into perceived value areas of the market. We remain confident in Puma’s prospects and have added to our position; echoing our long-term view on several stocks exposed to this theme, the company’s CEO Bjørn Gulden said people around the world clearly want to do more sport as soon as restrictions allow.

CTS Eventim and Spotify, two names exposed to our newest Encouraging sustainable leisure theme, also had a slower quarter. As Europe’s largest ticketing company for music and live events, CTS continues to suffer from dramatically reduced sales due to lockdown measures but we remain confident in the financial strength of the business and believe demand will return when the vaccination programme begins to get control of Covid-19. The shares have performed well since our purchase at the height of the pandemic, particularly in the last quarter of 2020, and the recent selloff again reflects the market focusing on value rather than anything company specific.

Spotify, meanwhile, reported user growth of 27% and paying subscriber growth of 24% in the final quarter of 2020. The company continues to grow ahead of peers and invest in both exclusive content and improving the user experience. Over the next 10 years, we believe it can reach 900 million users and see a number of ways the company can monetise this audience. Spotify recently announced the acquisition of Betty Labs, creator of the popular live sports audio app Locker Room, which enables fans to discuss their favourite sports teams. With all this innovation, we are excited about the next decade and more for Spotify, despite the recent tech selloff.

Elsewhere, Unifiedpost is exposed to our Improving the resource efficiency of industrial and agricultural processes theme, focusing on digitising business administration and payments. Around 95% of documentation between European businesses is still paper based, which is slow, subject to error and has a significant environmental footprint, and this company’s software allows companies to cut down paper, time, money and fraud with a number of digital tools. Governments around Europe are mandating the digitising of this documentation, as well as faster and safer digital payment transfers. Unifiedpost is organically growing its business by adding new SMEs as well as consolidating a fragmented market by buying smaller competitors in new geographies. The company reported strong organic growth for 2020, as well as three new acquisitions but, while operational performance remains strong, it sold off as a newly listed technology business amid the recent market rotation. Again, we remain confident in the long-term prospects.

In terms of purchases over the period, we have added IT engineering business Nagarro under that same theme, a spinout from German tech company Allgeier with a business model to build software solutions for blue-chip clients such as BMW, Roche and McKinsey. Nagarro tackles complex and specific tasks for customers, helping them save time and money and improve their customer experience. We also highlight the strong culture, with effective management of the human capital that makes this business stand out among peers, and, as a recent spinout, the company is not that well known so the valuation for future cashflow growth is very reasonable.

Cancom was another purchase under Enhancing digital security; formally, around a third of the business is related to security but the reality is that all its services enable security and efficiency for clients. The company is growing organically at around 10% a year and we believe the valuation is in line with long-term UK holding Softcat in this space. We also added Lifco under our Providing affordable healthcare theme, which acquires small and medium-sized business in areas including dental materials and equipment, and consumer review website Trustpilot, a further purchase for Increasing financial resilience.


In terms of sells, we exited Novozymes on valuation grounds and the company goes back onto our watchlist; we feel the current price reflects intrinsic value and the valuation needs to reset to a more mature growth profile. We also sold German chemical and consumer goods business Henkel based on losing conviction in its thematic story and fundamentals. There are no particularly strong tailwinds driving demand growth for either adhesives or its beauty and laundry products and we feel long-term underinvestment in sales and marketing and research and development was ultimately unsustainable, leading to lacklustre sales growth in a period where several competitors upped their investment in market and product development.


Finally, we moved on from Italian textiles business Aquafil, which we owned under our Delivering a circular materials economy theme. We were excited by the growth opportunity in recycled materials but this has not resulted in either a growth inflection or pricing power, and fundamentals have seriously declined for this cyclical business, with sales falling since 2018.

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







Liontrust Sustainable Future European Growth
2 Acc






MSCI Europe ex UK






IA Europe Excluding UK












* Source: Financial Express, as at 31.03.21, primary share class, total return, net of fees and income reinvested.

Understand common financial words and terms See our glossary

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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


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.

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