Liontrust GF European Smaller Companies Fund

June 2019 review

The Fund’s A5 share class returned 2.7%* in euro terms in June (A4 share class 2.7%). This compares with the 2.9% return from the MSCI Europe Small Cap Index.

 

Central bankers provided impetus for markets to bounce back from their wobble in May. The US Federal Reserve gave its strongest hint yet that it is ready to loosen its monetary policy. The bank dropped the word “patient” from its June policy statement, while noting that uncertainties have increased with regards to the outlook for inflation and economic growth. The Federal Open Market Committee will “act as appropriate to sustain the expansion”. According to futures markets, a rate cut in the next meeting in July is certain.

 

The Fed’s statement came after European Central Bank (ECB) President Mario Draghi indicated the possibility of extra monetary support for the eurozone. In a speech on 20 years of ECB monetary policy, Draghi highlighted that risks to the economic outlook remained tilted to the downside and if there isn’t an improvement then additional stimulus would be required. His speech sparked a rally in eurozone debt with the yield on German 10-year Bunds reaching a new record low.

 

Away from central banks, an escalation in geopolitical tensions saw a surge in oil prices in the second half of June. Iran was blamed for an attack on two oil tankers in the Gulf of Oman and the downing of a US reconnaissance drone. Trump said US aircrafts were en route to strike back against Iran, but he called off the attack at the last minute. The fears that this conflict could continue and potentially disrupt oil supply lines saw the price of Brent rise 11% in the second half of June. This supported shares in Swedish energy company Tethys Oil (+20.6%). The price of gold, a traditional safe haven, meanwhile reached its highest price in over five years.

 

Most sectors in the MSCI Europe Index made gains in euro terms. The best performer was materials (+7.7%) followed by consumer discretionary (+7.7%) and industrials (+6.6%). Real estate was the only sector to end in the red, falling 5.0%. 

 

There were a number of stocks in the Fund which participated in the rise in European equities, with some companies such as CIE Automotive (+17.5%), Belimo Holdings (+15.2%) and Kardex (+11.1%) all making double digit returns without releasing any corporate newsflow.

 

French aircraft manufacturer Dassault Aviation (+13.2%) also did not release any significant corporate news, but its share price rose following a broker upgrade. The stock had fallen around 25% from its 2019 peak and analysts believe that the company is now cheaply rated and has the flexibility to significantly increase its dividend payment. Rightmove’s (-8.7%) share price move was also driven by a broker rating change. The company was downgraded on concerns about a weak UK housing market.

 

An update from the Polish government that it will reduce the cap on non-interest cost of consumer loans to a flat 10%, from 25% hurt shares in International Personal Finance Group (-25.5%). The home credit provider noted that the proposals will need to be reviewed by the EU and it will seek a “more positive outcome”. The company added that it will update the market on the potential impact from the proposal, but the sizeable decline in its share price suggested that investors are expecting a significant blow.

 

Surgical and woundcare specialist Advanced Medical Solutions Group (-13.7%) fell despite saying that it has performed well in the first half of 2019 and it remains on track to meet the board’s expectations for the full-year. The company did note that sales of US LiquiBand surgical technology had reduced as customers did not replenish inventories which had been built for Brexit. However, the group remained confident that sales growth will return in 2020 as it launches its new Liquiband XL device.

 

We continued to implement the changes from our annual review with the sales of Altri SGPS, Brunello Cucinelli and UPM-Kymmene. Forbo Holding, Judges Scientific and Strabag were added.

 

Positive contributors to performance included:

Tethys Oil (+20.6%), CIE Automotive (+17.5%) and Nemetschek (+15.7%).

 

Negative contributors to performance included:

International Personal Finance (-25.5%), Advanced Medical Solutions (-13.7%) and Rightmove (-8.7%).

 

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

 

 

Jun-19

Jun-18

Liontrust GF European Smaller Companies A5 Acc EUR

-2.7

2.0

MSCI Europe Small Cap Index

-4.4

9.8

 

*Source: Financial Express, as at 30.06.2019, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 03.07.2019, 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.
Wednesday, July 24, 2019, 11:09 AM