Liontrust GF European Strategic Equity Fund February 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 0.6%* in euro terms in February. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned -3.0% and 0.2% respectively.

European markets held firm for the first half of the month as more evidence of inflationary pressures fed through, but then slid as it became clear that Russia’s aggression towards Ukraine was going to culminate in an invasion rather than any diplomatic solution.

The market reaction to Putin’s announcement of an invasion on 25 February included a sharp rotation towards safe haven assets and defensive areas of the equity market. The implications for supply disruption to energy and other commodities drove a spike in prices: Brent crude oil jumped 11% to finish February at $100 a barrel, while the Bloomberg Base Metals Index rose 6% and the Bloomberg Agriculture and Livestock Index gained 8%.

Against this backdrop, the Fund’s very favourable recent return profile continued: the short book made another outsized positive contribution as its holdings on average fell by more than the market, while the long book outperformed the market.

The portfolio’s best performing short book stocks included: a Swedish audio book streaming company which announced its CEO’s departure and issued soft guidance; a US pharmaceutical software provider whose Q1 guidance missed estimates; and a London-listed platinum group metals miner whose projects are located in Russia

The commodity price rally translated into strength for the European materials sector, up 0.6% in February. The utilities (+1.8%) and healthcare (+0.6%) sectors were the MSCI Europe Index’s other strongest areas as investors sought defensive exposure. The weakest sectors were cyclicals: finance (-8.1%), consumer discretionary (-7.4%), IT (-4.1%) and industrials (-3.2%)

In the long-book, international mining groups Anglo American (+18%) and Rio (+11%) were among the top contributors alongside German Potash manufacturer K+S (+37%). The potential for supply disruption in the potash market is heightened due to two of the world’s largest producers – Uralkali of Russia and Belaruskali of Belarus – being the subject of economic sanctions imposed by a number of countries.

Market research firm Ipsos (+6.2%) also performed strongly. It achieved organic growth of 18% in 2021, a growth rate flattered by its comparison with a heavily lockdown-affected 2020. Compared with 2019, growth was still a healthy level of 10%. The company expects more growth in 2022, albeit at a lower rate. It commented that January performance was well ahead of its 2021 comparable and the company’s internal targets, but that it remains cautious as to how the rest of the year will play out.

The Fund held one long position in a Russian stock at the start of February: London-listed steel producer Evraz (-47%). The holding was disposed of as the Russian invasion of Ukraine began.

While the investment process’s market regime indicators continue to point towards a Recovering Value and Momentum bias to the long book, recent market turmoil – in combination with an expensive market valuation indicator and rising corporate aggression – has presented an opportunity to add stocks with inexpensive defensive and quality characteristics. We added Roche and GlaxoSmithKline during February, funding the new positions with disposals of Carnival, Elior, Simcorp, Thungela Resources and United Airlines.

The long book felt the impact of weakness in cyclical sectors through industrial goods manufacturer Concentric (-19%) and financial services groups BNP Paribas (-16%) and Deutsche Pfandbriefbank (-10%). AP Moller-Maersk (-11%) was another heavy faller as investors processed the implications on its shipping business of wide-ranging trade sanctions against Russia.

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 Equity A4Acc 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 objective & policy¹	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. The Fund may invest anywhere in the world but will primarily invest in European companies either directly or via derivatives. The Fund may use financial derivative instruments for investment purposes and for efficient portfolio management (including hedging). The Fund will take both long and short positions in derivatives meaning the gross exposure of the Fund will typically be greater than 100% of the net asset value of the Fund. The Investment Adviser will alter the ratio of long and short exposures in the Fund depending on the Investment Adviser’s confidence in the investment process’ ability to generate returns from the short positions. Where sufficient short opportunities can be found, the Fund will have an approximately equal weighting in long and short positions. At other times, the Fund will have a net long position i.e. more long positions than short positions held in the Fund. Where investments are held in a currency other than the base currency, the exposure to currency risk may be minimised by hedging. The Fund expects to provide a positive absolute return under all market conditions over the medium to long term. However, there is no guarantee this will be achieved over this or any other time period. Income from the Fund's investments is reinvested. The Fund has both Hedged and Unhedged share classes available. The Hedged share classes use forward foreign exchange contracts to protect returns in the base currency of the Fund.
Recommended investment horizon	5 years or more
Risk profile (SRRI)²	5
Active/passive investment style	Active
Benchmark	The Fund is considered to be actively managed in reference to MSCI Europe Index and the HFRX Equity Hedge (EUR) Index (the “Benchmarks”) by virtue of the fact that it uses the Benchmarks for performance comparison purposes. The Benchmarks are not used to define the portfolio composition of the Fund and the Fund may be wholly invested in securities which are not constituents of the Benchmarks.

Notes: 1. As specified in the KIID of the fund; 2. SRRI = Synthetic Risk and Reward Indicator. Please refer to the KIID for further detail on how this is calculated.

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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.