Liontrust European Growth Fund

The Fund returned 5.4%* in sterling terms in December. The MSCI Europe ex-UK index comparator benchmark returned 3.9% and the average return made by funds in the IA Europe ex-UK sector, also a comparator benchmark, was 3.4%.

Global equity markets rapidly recovered from the late-November sell-off which was triggered by the emergence of the highly transmissible Omicron variant of Covid-19. While cases have risen rapidly, hopes remain that the economic impact will be moderated by its lower severity and a reluctance by governments to reintroduce substantial curbs on businesses and individuals.

The spike in Covid-19 is only likely to exacerbate inflationary pressures which are already substantial. US consumer price inflation hit 6.8% in November, its highest level since 1982. For the same month, data releases showed inflation at 5.1% and 4.9% in the UK and eurozone respectively.

Having recently accepted that inflation may not be transitory in nature, the US Federal Reserve – as expected – announced an acceleration of its tapering of asset purchases, paving the way for earlier rate rises. In more of a surprise move, the Bank of England decided that price pressures justified a rate increase in December, if only to 0.25%, up from 0.1%. The European Central Bank is taking a much milder approach to combating inflation, cuttings its monthly rate of bond purchases but committing to maintaining them until at least October, while also ruling out any rate rises in 2022.

The European market’s rise was led by cyclical sectors such as industrials (+6.5%), energy (+5.8%) and materials (+4.9%). With the sharp recovery in investor sentiment shaping the market’s December gains, many of the Fund’s largest contributors rose without any stock-specific catalyst.

Several of the these were to be found in the Fund’s large industrials sector exposure, itself a partial by-product of the heavy value tilt we have applied to the Fund for the last 18 months. Norwegian shipping and logistics giant AP Moller-Maersk (+17%) made further ground following last month’s well-received Q3 results and Swedish industrial tools manufacturer Atlas Copco (+10%) was a strong riser, helped by broker rating upgrades. Swedish robotics and automation specialist ABB (+8.6%) and French electric, heating, lighting and plumbing distributor Rexel (+8.4%) both moved higher without significant newsflow.

Away from industrials, the Fund’s biggest contributors included Swedish metals mining and smelting group Boliden (+10%) and Italian car manufacturer Stellantis (+8.9%), again without stock-specific news.

Against this risk-on market backdrop, there were only a handful of positions to suffer negative performance in December. Of these, Daimler (-4.3%) is probably the most notable due to the spin-off of Daimler Truck announced earlier this year. The demerger completed in December, with the Fund now owning positions in both companies.

Positive contributors to performance included:

AP Moller-Maersk (+17%), Atlas Copco (+10%) and Boliden (+10%).

Negative contributors to performance included:

Daimler (-4.3%), Moncler (-1.4%) and Pandora (-1.2%).

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

*Source: Financial Express, as at 31.12.21, 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 31.12.21, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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. Some of the Funds may invest in derivatives. The use of derivatives may create leverage or gearing. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. Some of the funds may hold 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.

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