Liontrust European Growth Fund

December 2018 review

The Fund returned -5.0%* in sterling terms in December, compared with the -4.8% return from the MSCI Europe ex-UK index.

 

Global stock markets failed to get into the festive spirit in the final month of 2018, ending the year sharply lower. December started off in fairly positive fashion with China and the US agreeing a truce against any further escalation in the trade war and commencing three months of negotiations. Though this meant trade tensions took a back seat, the themes which caused the poor stock market performance in October returned: concerns about global growth, tightening monetary policy and oil prices.

The latter saw a particularly volatile end to the year. Brent crude received a short-lived lift after Opec and Russia announced output curbs of 1.2 million barrels a day. However, investors still had worries about oversupply with US shale producers continuing to pump oil at record levels. Alongside this, uncertainty about the global economy drew into question the resilience of demand for the commodity. This resulted in Brent crude shedding 8.4% over the course of the month and end 38% off its October high. This hurt a handful of the Fund’s oil exposed stocks: Tethys Oil (-18.0%), Subsea 7 (-9.9%) and Lundin Petroleum (-5.7%) were some of the names affected.

Investors also kept a close eye on the last central bank decisions of the year. The European Central Bank confirmed the end of its quantitative easing scheme and maintained guidance that interest rates are to stay unchanged until summer 2019. However, the market’s focus was on the US Federal Reserve which hiked interest rates for the fourth time in 2018 and lowered its estimation for rate hikes in 2019 to two from three. Following sharp stockmarket declines and soft economic data, some investors were hopeful of a stronger signal of a slowdown in monetary tightening.

The mood in markets was unsurprisingly risk off, with utilities (+3.0%) the only sector in the MSCI Europe ex-UK Index to avoid losses in sterling terms. The heaviest selling occurred in the real estate (-7.8%), financial (-6.5%) and industrial (-5.4%) sectors.

Individual company news was fairly thin on the ground during December, with the majority of moves largely sentiment driven. French bank Natixis (-14.5%) was one of the holdings to release an update. In its fourth quarter trading statement, the company said it anticipates net revenue for the fourth quarter of 2018 to be around €2bn, compared to €2.25bn in the same period last year. It stated that the decline was a result of a €260m hit charge related to a deficient hedging strategy in its Asian business.

Eramet (-14.2%) shares suffered after the French metals company revealed it had found quality management issues within its Alloys division. It noted that while there was no impact on safety of its products the financials consequences of this correction are expected to be material.

Integrated investment management solutions company SimCorp (+7.7%) received some welcome relief in its share price, having been hit hard amid the trade war tensions. The company announced that an Asian investment company signed a “very large” 8-year subscription licence agreement with its SimCorp Dimension division. It added that a small revenue uplift will be realised in 2018, but the majority will flow through in the second quarter of 2019.

Positive contributors to performance included:

Epiroc (+14.7%), SimCorp (+7.7%) and CAF (+6.0%).

 

Negative contributors to performance included:


Tethys Oil (-18.0%), Deutsche Pfandbriefbank (-15.6%) and Natixis (-14.5%).

 

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

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Liontrust European Growth I Inc

-12.8

11.8

26.2

8.8

4.6

MSCI Europe ex UK

-9.9

15.8

18.6

5.1

-0.7

IA Europe Excluding UK

-12.2

17.3

16.4

9.3

-0.9

Quartile

3

4

1

3

1

 

*Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.

For a comprehensive list of common financial words and terms, see our glossary here.

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. 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. The Liontrust European Growth Fund holds 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. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 

 

Disclaimer

 

The information and opinions provided 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. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Wednesday, January 30, 2019, 10:04 AM