Liontrust European Growth Fund

May 2018 review

The Fund returned 3.1%* in sterling terms in May, compared with the -0.9% return from the MSCI Europe ex-UK index.

 

Trade tensions between China and the US eased for most of May, before being sparked again by Trump’s decision late in the month to move ahead with tariffs on US$50bn of Chinese imports. The US also announced that the EU, Canada and Mexico would be subject to tariffs, once again raising the prospect of retaliatory action. 

 

Momentum in oil prices continued with Brent oil surpassing US$80/barrel for the first time since 2014. The rise in May reflected a combination of Venezuela’s oil exports declining under the pressure of political and economic turmoil and the anticipation of Iranian crude sales slowing after the US withdrew from the nuclear deal.

 

Elsewhere, the market was captivated by developments in Italy. The country’s two leading parties looked close to forming a government before their candidate for finance minister was blocked by President Sergio Mattarella. This sparked concern that another election could be held where anti EU parties could gain even more power. Investors sold out of Italian debt and equities causing the Italian central bank to intervene and purchase bonds to stabilise the market. Calm was restored towards the end of the month, as a deal to form a government again looked likely.

 

IT stocks were the top performers across European markets in May with the sector registering a 6.7% gain. Materials (+3.0%) and healthcare (+2.4%) sectors also had a good month. Financials (-8.5%) and telecoms (-6.9%) were notable areas of weakness.

 

Although the energy sector of the market only saw a flat return in May, the Fund’s c.10% exposure made a large positive contribution to performance. Tethys Oil (+27.5%), Lundin Petroleum (+20.5%) and Subsea 7 (+12.3%) all made gains. While all three released Q1 numbers in April and Subsea 7 in May announced the award of a five year contract from Statoil and withdrew its US$2bn bid for a US rival, most of the share price strength appears attributable to the rise in underlying oil prices.

 

In attribution terms, the Fund’s low exposure to banks relative to the MSCI index was also a positive. Sentiment towards banks turned lower as a result of the Italian political turmoil and the risk that the Eurozone financial system could be negatively affected. The Fund holds an Italian bank – Mediobanca (-19.9%) – whose shares were marked down heavily during May, but exposure to the sector weakness was otherwise low.

 

SimCorp (+14.7%) shares rallied on the back of a solid set of Q1 numbers and the maintenance of full-year forecasts. Q1 revenue increased 23% year-on-year, the result of organic expansion and the acquisition of SimCorp Italiana. Operating profit more than doubled. The provider of portfolio management software commented that 2018 forecasts are maintained at 10%-15% local currency revenue growth with an expectation of an operating profit margin between 24.5% and 27.5%.

 

Oriflame (-23.4%) fell on outlook comments. The cosmetics retailer recorded an 8% sales increase in the first quarter of 2018, boosted by the timing of catalogues, but operating margins were squeezed by 40bps to 9.2% due to negative currency trends. The company commented that a notable slowdown in sales in Russia as well as a negative effect from the timing of catalogues and conferences were affecting the start of the second quarter.

 

Further portfolio changes as part of this year’s annual restructuring included the additions of Boliden and Merlin Properties and the sales of DFDS and Nokian Renkaat.

 

Positive contributors to performance included:

Tethys Oil (+27.5%), Lundin Petroleum (+20.5%) and Simcorp (+14.7%).

 

Negative contributors to performance included:

Oriflame (-23.4%), Mediobanca (-19.9%) and Merlin Properties (-6.3%).


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

 

Mar-18

Mar-17

Mar-16

Mar-15

Mar-14

Liontrust European Growth I Inc

0.6

30.3

8.4

5.2

11.3

MSCI Europe ex UK

3.0

27.2

-5.3

7.0

17.0

IA Europe Excluding UK

5.6

23.7

-1.8

6.9

17.4

 

*Source: Financial Express, as at 31.05.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 31.03.2018, total return (net of fees and income reinvested), bid-to-bid, primary 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, June 11, 2018, 11:22 AM