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Liontrust GF European Smaller Companies Fund

May 2022 review

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 Fund’s A3 share class returned -0.9%* in euro terms in May. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned -1.7%.

 

Both the US Federal Reserve and the Bank of England enacted further interest rate hikes in May as they sought to bring inflation under control, with consumer inflation for April hitting 8.3% and 9.0% in the US and UK respectively. The eurozone equivalent isn’t far behind at 7.5%, putting pressure on the European Central Bank to consider its first rate increase in over a decade. Futures markets are currently pricing in a hike of 30 basis points at the ECB’s July meeting.

 

The EU agreed a plan to block around 90% of Russian oil imports by the end of the year. The prospect of a further supply squeeze in energy markets pushed the Brent crude oil price up 12% to nearly $123 a barrel. Within European equity markets, energy was by far the strongest sector, rising 11%. Finance (+2.5%) and communications services (+1.6%) were other risers within the MSCI Europe Index, while real estate (-4.6%) consumer staples (-4.1%), health care (-3.2%) and IT (-3.0%) were the weakest.

 

The Fund’s holding in BW Offshore (+25%) was the strongest in May. The company issued Q1 results which commented that elevated oil and gas prices are leading the industry to become more active in progressing new field development projects. It also announced the limited notice to proceed (LNTP) award of a contract with Shell for the proviusion of a FPSO (Floating production storage and offloading) for the Gato do Mato field offshore Brazil. The LNTP contract is worth up to $50m, with the full contract still subject to finalisation of commercial and pricing terms with Shell, given the current inflationary supply chain market.

 

Public sector contractor Serco Group (+16%) raised 2022 financial guidance on the back of stronger-than-expected trading in the first four months of the year. Revenues had previously been expected to fall from £4.4bn in 2021 to a £4.1bn - $4.2bn range in 2022. Serco’s work on the UK Test & Trace programme ending in April, meaning the loss of £220m in revenue in the first half of the year relative to the 2021 comparable. However, Serco now expects to largley replace this revenue with other government work around the world. Its new 2022 revenue guidance is £4.3bn - $4.4bn, while its underlying trading profit target has been raised from £195m to £225m.

 

Building materials manufacturer Forterra (+13%) also raised guidance. In the first four months of the year, revenues rose 25% - ahead of managements‘ expectations. Although capacity and inventory constraints are expected to cap the rate of growth in the remainder of the year, Foreterra expects that 2022 results will be materially ahead of its previous targets. It commented that it has successfully passed on cost increases to its customers via prices, while it has already fixed costs on 85% of its 2022 energy requirements and a third of its 2023 gas requirement.

 

By contrast, Belimo Holding (-23%) is viewed as overly exposed to raw material price rises according to one sell-side broker that cut its rating on the stock at the start of May. Belimo designs and produces actuators and control valves for the operation of air conditioning and ventilation systems. The broker noted that key inputs such as steel, copper and aluminium could cause cost inflation for the company.

 

 

Although Keller Group’s (-13%) AGM update maintained its full-year financial guidance, the share price reaction suggests that investors are concerned by some of the headwinds mentioned. Revenues have been in-line with Keller’s expectations, with a significant portfolio of costs increases passed on in higher prices, but it has been affected by materials shortages.

 

Positive contributors to performance included:

BW Offshore (+25%), Serco Group (+16%) and Forterra (+13%).

 

Negative contributors to performance included:

Belimo Holding (-23%), Impax Asset Management (-22%) and Keller Group (-13%).

  

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

Past performance does not predict future returns.


Mar-22

Mar-21

Mar-20

Mar-19

Mar-18

Liontrust GF European Smaller Companies A5 Acc EUR

8.6%

69.9%

-21.8%

-2.6%

1.0%

MSCI Europe Small Cap

1.9%

61.2%

-18.1%

-1.3%

8.3%


*Source: Financls at 31.05.22, total return (net of fees and income reinvested).

**Source: Financial Express, as at 31.03.22, total return (net of fees and income reinvested). Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio (01.02.17). Investment decisions should not be based on short-term performance.

A Performance Fee for each Performance Period shall be equal to 10% of the amount, if any, by which the Net Asset Value before Performance Fee accrual of the Fund exceeds the Indexed Net Asset Value of the Fund on the last Business Day of the Performance Period. The Performance Period of the Fund is every 12 months ending on the last business day of each calendar year. Details of the Fund's performance fee in the last financial year can be found in the Key Investor Information Document (KIID) which can be obtained free of charge from the Liontrust website.

 

Key Features of the Fund

The investment objective of the Fund is to achieve long term capital growth by investing primarily in European smaller companies. The Fund may invest in all economic sectors in all parts of the world, although it is intended it will invest primarily in equities and equity related derivatives (i.e. total return swaps, futures and embedded derivatives) in European companies (including the UK and Switzerland). The majority of the assets of the Fund (more than 85%) are expected to be invested in smaller companies (with a market capitalisation of less than 5 billion euros at the time of the initial investment). In normal conditions, the Fund will aim to hold a diversified portfolio, although at times the Investment Adviser may decide to hold a more concentrated portfolio, and it is possible that a substantial portion of the Fund could be invested in cash or cash equivalents. The Fund may use FX forwards to hedge the Fund’s currency exposures. 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.
5 years or more.
6 (Please refer to the Fund KIID for further detail on how this is calculated)

Active.
The Fund is considered to be actively managed in reference to MSCI Europe Small -Cap Index net total return (the “Benchmark”) by virtue of the fact that it seeks to outperform the Benchmark. However the Benchmark is 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 Benchmark.
Understand common financial words and terms See our glossary
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.

The portfolio is invested in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. 

DISCLAIMER

Non-UK individuals: This document is issued by Liontrust International (Luxembourg) S.A., a Luxembourg public limited company (société anonyme) incorporated on 14 October 2019 and authorised by and regulated as an investment firm in Luxembourg by the Commission de Surveillance du Secteur Financier (“CSSF”) having its registered office at 18, Val Sainte Croix, L-1370 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register under number B.238295. UK individuals: This document is issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business.

This is a marketing communication. It 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.   

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