Liontrust GF European Strategic Equity Fund January 2022 review | Insights

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’s A4 share class returned 5.5%* in euro terms in January. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned -3.2% and -2.2% respectively.

In early January, minutes from the US Federal Reserve’s December meeting served notice of its intention to raise rates sooner and faster than had been expected and to scale back its balance sheet. After data showed that US consumer price inflation rose to 7%, Fed Chair Jay Powell later confirmed that the Fed would plan to raise rates in March and finish quantitative easing in the same month. Vitally, he also indicated – or refused to rule out – the possibility of raising rates at every policy meeting in 2022 or raising rates by increments greater than 25 basis points.

While bond yields rose, the effect of higher rate expectations on equity markets was to further catalyse the rotation from growth to value. Last month we commented that the short book’s good performance was the result of the market beginning to shun the expensive hyper-growth stocks with negative cash flow that we are shorting in the current environment. This trend saw a big acceleration in January. The MSCI Europe Value Index outperformed the MSCI Europe Growth Index by 12 percentage points.

In very simple terms, the Fund’s long book has a heavy value tilt while its short positions target the worst examples of over-ambitious and overvalued growth. This fed through to a very strong performance in January. An outsized positive contribution from the Fund’s short book drove this performance, allowing the Fund to post a positive return despite a 30% net exposure to a falling market. The long book, while losing value, outperformed the drop in the MSCI Europe Index.

One of the short book’s largest contributions came from a UK direct-to-consumer brand marketing platform whose operating model has received a lot of negative attention since listing last year. Other profitable short positions included: a US-listed developer of transfusion diagnostics; a Swedish biotech company caught up in a patent dispute; and a UK consumer reviews platform whose 2021 trading update was better than expected, but which is also contending with the expiry of a shareholder lockup period

Within the long book, Lundin Energy (+15%) and Tethys Oil (+7.2%) offered some participation in an energy sector that was by far the strongest area of the MSCI Europe ex-UK Index, up 14% as the Brent crude oil price rose 17%. Other sources of value strength included potash manufacturer K+S (+10%), electricals and plumbing distributor Rexel (+10%), and mining giants Rio (+6.5%) and BHP (+6.1%). Within the Fund’s financials exposure, Bank of Ireland (+20%), BNP Paribas (+3.7%) and Capital One Financial (+2.6%) all rose.

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

Past performance does not predict future returns

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust GF European Strategic Equity A4 Acc EUR	32.87%	-9.97%	23.22%	-7.12%	4.17%
MSCI Europe	25.13%	-3.32%	26.05%	-10.57%	10.24%
HFRX Equity Hedge EUR	11.03%	2.91%	8.55%	-12.26%	7.76%

	Dec-16	Dec-15
Liontrust GF European Strategic EquityA4 Acc EUR	4.85%	6.09%
MSCI Europe	2.58%	8.22%
HFRX Equity Hedge EUR	-1.66%	-3.09%

*Source: Financial Express, as at 31.01.22, total return (income reinvested and net of fees).

**Source: Financial Express, as at 31.12.21, total return (income reinvested and net of fees). Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio (25.04.14). Investment decisions should not be based on short-term performance.

Key Features of the Liontrust GF European Strategic Equity Fund

Investment policy summary	The investment objective of the Fund is to achieve a positive absolute return over the long term for investors through a portfolio of long, synthetic long and synthetic short investments primarily in European equities and equity related derivatives
Allowable investment types	Equities. Financial Derivatives. Currency Forwards. Cash, near cash, money market instruments, warrants Government and corporate bonds (for cash management and liquidity purposes). Collective Investment Schemes (including ETFs) up to 10% of the NAV of the Fund. For a full list of the types of investment allowable in the Fund please see the KIID/Prospectus.
Holding period	Long-term
Risk profile (SRRI)	5
Active/passive investment style	Active
Benchmark	Comparator benchmarks: MSCI Europe Index and HFRX Equity Hedge (EUR) Index
Costs	1.75% Ongoing Charges Figure (A4 class): 1.5% Annual Management Charge and 0.25% Fixed Admin Fee (as at 31.12.21). A performance fee of 20% is calculated and accrued at each valuation point. Payment is subject to the Fund's net asset value exceeding an Adjusted Prior Net Asset Value which is a High Water Mark adjusted by any new subscriptions or redemptions and a 4% hurdle per calendar year. No Performance Fee will be payable with respect to a Fund class in any Performance Period unless such class has recovered any accumulated underperformance for previous Performance Periods. Any performance fees are only payable on the positive difference between the NAV and the Adjusted Prior Net Asset Value

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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.

Disclaimer

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.