Liontrust European Growth Fund

January 2019 review

The Fund returned 7.3%* in sterling terms in January, compared with the 3.0% return from the MSCI Europe ex-UK index.

 

The positive start to 2019 was a stark contrast to the way 2018 ended for equity markets. Markets found some respite after key headwinds eased slightly in January. There was optimism that trade tensions between China and the US could recede as the pair continued talks amid a truce against further tariffs. Protectionist measures between the two superpowers have begun affecting the real economy with economic data from China in particular showing signs of a slowdown. This was mirrored in corporate news too, most notably with Apple warning of slowing iPhone revenue from China.

 

As is often the case in China, the central bank provided extra stimulus to calm investors. The People’s Bank of China announced that it would reduce the reserves that commercial banks are required to hold, which would free up around US$117bn in its banking system.  

 

The Federal Reserve, however, was the main focus for investors as the US central bank softened its rhetoric on its balance sheet normalisation and the pace of interest rate increases. Fed members stated that they will be patient with further adjustments to monetary policy as a result of building global economic and financial pressures and muted inflation. Increasingly tight monetary policy has suppressed the market in recent months and the Fed’s statement lifted this pressure for the time being.

 

The gains in European equities were broad based. The best performing sectors in the MSCI Europe ex-UK were real estate (+11.0%), consumer discretionary (+5.8%) and IT (+4.9%), while communication services (-3.6%) was the only sector to end lower.

 

The Fund’s overweight allocation to the consumer discretionary segment of the market aided performance, with Peugeot (+14.5%), CIE Automotive (+12.3%) and Moncler (+9.3%) benefiting from sector rotations. Peugeot and CIE were also among a strong European auto sector, which rose on optimism of a trade deal between the US and China. Luxury Italian apparel manufacturer Moncler rose following positive read across from French peer LVMH, which reported Q4 numbers showing no reduction in demand from China.

 

Lundin Petroleum (+25.4%) tracked a rebound in oil prices, while also releasing an upbeat Q4 statement. The Swedish oil and gas exploration company stated that stronger commodity prices and lower than expected operating costs saw free cash flow rise to a record high in 2018. This allowed it to announce a bumper dividend package of SEK13.4/share up from SEK4.0 in 2017.

 

Software AG (-2.8%) and Eramet (-2.1%) were among the small handful of detractors from performance this month. Software AG released strong fourth quarter results, with revenue of €265m coming in ahead of analyst estimates. However, the market was perhaps a bit cautious on the company’s growth plans, which will require investment of around €50m. Shares in French metallurgy company Eramet sank on concerns about manganese prices reaching their peak. Analysts said the metal accounts for 90% of Eramet’s earnings before interest, taxes, depreciation and amortisation.

 

Positive contributors to performance included:

Lundin Petroleum (+25.4%), ENCE Energia y Celulosa (+20.8%) and Peugeot (+14.5%).

 

Negative contributors to performance included:

Software AG (-2.8%), Eramet (-2.1%) and Epiroc (-0.8%).

 

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 31.01.2019, 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, February 13, 2019, 11:57 AM