Liontrust European Growth Fund

June 2018 review

The Fund returned -1.0%* in sterling terms in June, compared with the 0.2% return from the MSCI Europe ex-UK index.

 

Despite making a marginal gain, the threat of a trade war once again weighed on European equities. China and the US were unable to come to a trade agreement and soon after negotiations ended, President Trump confirmed tariffs of 25% on US$50bn worth of Chinese imports. China outlined retaliatory actions and both sides threatened to increase these measures.

 

The exchange of hostilities hit sentiment in European markets, causing a clear defensive tilt. Utilities (+3.0%), consumer staples (+2.3%) and health care (+2.2%) were all among the best performing sectors in the MSCI Europe ex-UK Index in sterling terms, behind only energy (+3.0%). The one traditionally defensive sector to underperform was telecoms (-0.7%), but was still some way off consumer discretionary (-4.8%), which was the biggest laggard.

 

There was also significant central bank news this month. The US Federal Reserve raised its target for the Fed Funds rate by 25bps to 1.75%-2.0%. The Federal Open Market Committee’s forecast of future interest rates showed it expects to hike rates twice more in 2018, one more than the guidance given in March.

 

The European Central Bank (ECB) unveiled its plans to wind down quantitative easing. The bank stated that its monthly asset purchases will fall from €30bn to €15bn in September 2018 and then end in December 2018, though interest rates were unlikely to change until at least summer 2019. The decision preceded the latest inflation data for the eurozone. Annual CPI in June was estimated to be 2.0%, up from 1.9% in May and largely in line with the ECB’s target of close to but below 2%. However core inflation – which strips out volatile items such as energy and food, remained sluggish and slipped to 1.0% from 1.1% in May.

 

Of the Fund’s holdings, ERAMET (-24.3%) was one of the disappointments, mainly due to the risk-off environment. The alloy metal company’s shares also came under pressure after its takeover for Mineral Deposits Limited (MDL) came into difficulty. MDL’s major shareholders announced that they will act in unison and believe that the price initially offered by ERAMET was too low. ERAMET later in June proposed an improved offer of A$1.75 per MDL share, up from A$1.46.

 

For the rest of the portfolio, newsflow was in short supply during June and major stock movements were mainly driven by investor sentiment. Global chipmakers were hurt by escalating trade war concerns. Siltronic (-14.5%) was among them, particularly because of its Asian exposure (68% of revenue in 2017).

 

Atlas Copco implemented a corporate action which saw Epiroc – a business focused on mining and civil engineering sectors – spin out into a separately listed company. The Fund received new shares in Epiroc, with the value of its Atlas Copco holding falling proportionately as a result.

 

There was also one other change to the Fund’s holdings: the sale of Norwegian offshore drilling company Fred Olsen Energy.


Positive contributors to performance included:

Ence Energía y Celulosa (+13.7%), Tethys Oil (+10.0%) and Merlin Properties (+6.5%).

 

Negative contributors to performance included:

ERAMET (-24.3%), Siltronic (-14.5%) and CIE Automotive (-11.3%).


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

 

Jun-18

Jun-17

Jun-16

Jun-15

Jun-14

Liontrust European Growth I Inc

5.0

29.3

18.9

-1.4

14.2

MSCI Europe ex UK

1.8

28.0

4.9

0.7

15.9

IA Europe Excluding UK

3.1

29.2

4.5

4.1

13.9

Quartile

2

2

1

4

3

 

*Source: Financial Express, as at 30.06.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


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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. 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 the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The 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 portfolio.

Disclaimer

This content 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.  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, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.

Monday, July 16, 2018, 4:17 PM