Liontrust GF European Smaller Companies Fund

June 2018 review

The Fund’s A5 share class returned -3.8%* in euro terms in June (A4 share class -3.9%). This compares with the -1.1% return from the MSCI Europe Small Cap Index.

 

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 proposed measures.

 

The exchange of hostilities hit sentiment in European markets, causing a clear defensive tilt. Utilities (+1.8%) was the best performing sector in the MSCI Europe Index in euro terms, with consumer staples (+1.3%) and health care (+0.8%) also strong gainers. 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, once more than the guidance given in March.

 

The European Central Bank (ECB) unveiled 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 (-24.9%) was one of the disappointments, mainly due to the risk-off environment. The alloy metal company’s shares came under pressure after its takeover of 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.

 

Royal Unibrew (+11.2%) delivered a positive surprise by upgrading its earnings guidance for the current year. Due to unseasonably good weather in Northern Europe, and a faster than expected integration of its Terme di Crodo acquisition, the brewer raised its earnings before interest and tax forecast to DKK 1.19-1.27 billion from DKK 1.09-1.19 billion. Net revenue forecasts were also adjusted slightly higher to DKK 6.80-7.00 billion from DKK 6.65-6.90 billion.

 

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 (-15.2%) was among them, particularly because of its Asian exposure (68% of revenue in 2017). Ferrexpo (-17.1%) was part of an underperforming materials sector (-2.1%) after a rise in the dollar had the inverse effect on commodity prices and hit miners.

Meanwhile, gambling company 888 Holdings (-10.7%) gave up the gains it made in May, when the US Supreme Court struck down a federal law which banned sports betting in the entire country. Other poor performers in the consumer space were CIE Automotive (-11.8%) and Scandic Hotels Group (-11.5%).

There were a few delayed changes made to the Fund’s holding as a result of our annual review. Norwegian offshore drilling company Fred Olsen Energy was sold while London-listed Restaurant Group, which owns chains such as Frankie & Benny’s and Chiquito, was added.

Positive contributors to performance included:

Ence Energía y Celulosa (+12.8%), Royal Unibrew (+11.2%) and Tethys Oil (+9.2%)

 

Negative contributors to performance included:

ERAMET (-24.9%), Ferrexpo (-17.1%) and Siltronic (-15.2%)

 

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

 

 

Jun-18

Liontrust GF European Smaller Companies A5 Acc EUR

2.0

MSCI Europe Small Cap Index

9.8

 

*Source: Financial Express, as at 30.06.2018, 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. 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.

The portfolio is invested in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. 

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, 4:50 PM