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Liontrust GF European Strategic Equity Fund

December 2023 review

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 0.3%* in euro terms in December. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 3.7% and 1.4% respectively.

European markets continued their strong end to 2023, with two-thirds of the year’s 15.8% return coming in November and December.

Investors continued to bet on rate cuts next year, defying the more measured recent message from central bankers that policy direction remains in the balance and data-dependent. This shift  gained more impetus mid-month as the US Federal Reserve signalled several rate cuts next year within its ‘dot plot’ forecasts and surprised investors who had been expecting a stronger effort to rein in the rally in bonds.  

The European Central Bank and Bank of England were more consistent in re-iterating the ongoing risks from inflationary pressures, with ECB president Lagarde saying ““we should absolutely not lower our guard.”

Nevertheless, markets finished the year pricing in 160 basis points of rate cuts from the ECB in 2024, compared with the 100bps forecast at the start of the month.

As investor risk appetite improved, European markets joined in the global equity rally, led by cyclical sectors such as real estate (+11%), industrials (+7.2%), materials (+6.5%) and IT (+4.7%). The MSCI Europe laggards were energy (-1.3%), consumer staples (+0.8%) and communication services (+0.9%).

The Fund’s current net market exposure was relatively high at 72% heading into December, reflecting our fairly constructive outlook. The long book was modestly geared at 112% and the short book comparatively small at -40%.

During December, the Fund underperformed relative to its net market exposure due to a disproportionate negative impact from the short book in a rising market. The move dovish message from the Federal Reserve game impetus to growth stocks as discount rates on future growth declined in line with interest rate expectations. This effect was particularly amplified for those growth stocks that had been suffering from poor momentum. Shorting expensive and poor momentum stocks has been one of the key style bets contributing to the Fund’s strong performance in recent years. With returns from the momentum style factor going into reverse in November and December, the Fund’s short-term returns have been constrained.

The long book’s top performers reflected market trends, with cyclical stocks such as travel and leisure operators Intercontinental Hotels Group (+15%) and Booking Holdings (+12%) prominent. Other large risers included market research group Ipsos (+15%), enterprise software provider Fortnox (+11%) and electrical supplies distributor Rexel (+12%).

The Fund’s largest detractors included long-book positions in banks such as Caixabank (-9.8%) and Bank of Ireland (-4.3%) – which were derated due to the implications of interest rate cuts on net interest income – and Games Workshop (-8.3%), whose half-year trading update underwhelmed investors despite the group describing revenues and profit forecasts as in-line with expectations.

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

 

 

Dec-23

Dec-22

Dec-21

Dec-20

Dec-19

Liontrust GF European Strategic Equity A4 Acc EUR

1.4%

18.3%

32.9%

-10.0%

23.2%

MSCI Europe

15.8%

-9.5%

25.1%

-3.3%

26.0%

HFRX Equity Hedge EUR

4.7%

-5.2%

11.0%

2.9%

8.5%

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust GF European Strategic Equity A4 Acc EUR

-7.1%

4.2%

4.8%

6.1%

MSCI Europe

-10.6%

10.2%

2.6%

8.2%

HFRX Equity Hedge EUR

-12.3%

7.8%

-1.7%

-3.1%


*Source: Financial Express, as at 31.12.23, total return (income reinvested and net of fees).

**Source: Financial Express, as at 31.12.23, 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 

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.
4 (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 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.
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.

Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. The Fund may, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. 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. The use of derivative contracts may help us to control Fund volatility in both up and down markets by hedging against the general market. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. The Fund uses derivative instruments that may result in higher cash levels. Outside of normal conditions, the Fund may choose to hold higher levels of cash. Cash may be deposited with several credit counterparties (e.g. international banks) or in short dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash. There is no guarantee that a positive absolute return will be generated over any time period.

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.

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