Liontrust GF European Smaller Companies Fund

December 2018 review

The Fund’s A5 share class returned -5.3%* in euro terms in December (A4 share class -5.3%). This compares with the -6.4% return from the MSCI Europe Small Cap 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 ending 38% off its October high. This hurt a handful of the Fund’s oil exposed stocks: Tethys Oil (-19.3%), BW Offshore (-16.9%) and Hunting (-16.7%) were some of the names affected.

The volatile oil market was one of the main features of oil services company Hunting’s year end trading statement. It stated clients have expressed caution in their spending commitments due to lower oil prices. It also commented that the current volatility in oil prices would continue to impact clients’ short term budget plans. 

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 (flat) the only sector in the MSCI Europe Index to avoid losses in euro terms. The heaviest selling occurred in the real estate (-7.2%), financial (-7.1%) and health care (-6.3%) sectors.

The materials sector was one of the more resilient sectors ending 2.9% lower, having initially received a boost from hopes of a better trading relationship between the US and China. For the Fund, the sector provided some of the biggest gainers: Ferrexpo (+12.7%), Evraz (+4.5%) and Centamin (+3.0%).

Iron ore mining company Ferrexpo pleased investors after announcing a special dividend payment worth US$40m, double the amount it paid last year. The company stated that strong cash generation from high pellet premiums have enabled it to reduce debt and fund capital expenditure. Premium prices are expected to be strong in 2019. Gold miner Centamin was a beneficiary of higher gold prices, as investors flocked to safe havens amid the market turbulence. The precious metal price increased 5.1% to US$1,282 an ounce in December.

The only change made to the portfolio was the sale of restaurant chain owner Restaurant Group after the group proceeded with a highly dilutive acquisition of Mabel Topco (owners of the Wagamama chain).

Positive contributors to performance included:

 

Ferrexpo (+12.7%), SimCorp (+6.2%) and Evraz (+4.5%).

 

Negative contributors to performance included:

 

Tethys Oil (-19.3%), Deutsche Pfandbriefbank (-16.9%), and Hunting (-16.7%).

 

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

 

 

Dec-18

Liontrust GF European Smaller Companies A5 Acc EUR

-20.1

MSCI Europe Small Cap Index

-15.9

 

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

 

**Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested). Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

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.

Friday, January 18, 2019, 2:40 PM