Liontrust GF European Smaller Companies Fund

The Fund’s A5 share class returned 4.9%* in euro terms in December. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 4.4%.

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 (+7.5%) and materials (+6.6%). 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.

French catering group Elior (+12%) and UK high street and transport hub retailer WH Smith (+13%) were the two portfolio holdings most exposed to resurgent Covid-19 fears in November, and both bounced back strongly on hopes that disruption to operations would be limited.

The Fund’s largest riser, Impax Asset Management (+13%), did release significant corporate news. The specialist in sustainable investing released full-year results reporting on another period of very rapid growth. In the year to 30 September, assets under management rose 85% to over £37bn following net inflows of £10.7bn. As a result, adjusted operating profit more than doubled to £56m.

Elsewhere in the portfolio, Keller Group (+11%), the geotechnical specialist contractor, announced a two-year contract worth £120m for its RECON division. The work relates to the development of an energy facility in the US Gulf Coast and involves soil stabilisation in preparation for construction.

Positive contributors to performance included:

Impax Asset Management (+13%), WH Smith (+13%) and Elior Group (+12%).

Negative contributors to performance included:

Concentric (-1.0%) and Marks & Spencer (-0.7%).

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

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

**Source: Financial Express, as at 31.12.21, total return (net of fees and income reinvested). Discrete data is not available for five full 12-month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

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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