Liontrust GF European Smaller Companies Fund

May 2018 review

The Fund’s A5 share class returned 1.3%* in euro terms in May (A4 share class 1.2%). This compares with the 1.7% return from the MSCI Europe Small Cap 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, the sector registering a 6.7% gain in euro terms. The materials (+4.5%) and energy (+3.5%) sectors also had a good month. Telecoms (-8.3%) and financials (-6.3%) were notable areas of weakness while utilities (-2.2%) also recorded a negative return. The Fund has four holdings in the oil & gas sector, all of which registered share price rises: Tethys Oil (+27.7%), Soco International (+7.3%), BW Offshore (+8.7%) and Hunting (+5.6%).

 

Many of the Fund’s positions in the materials sector also performed well, including Evraz (+11.6%), Eramet (+5.8%) and ENCE Energia y Celulose (+5.0%). But Centamin (-21.1%), another of the Fund’s holdings in the sector, came under pressure after downgrading production guidance for its Sukari gold mine in Egypt. Due to lower grades from its open pit and reduced underground production (c.10% below forecast), Centamin is now expecting 2018 production of between 505,000 and 515,000 ounces – down from 580,000 ounces – at a cash cost of US$875 to US$890 – up from US$770.

 

SimCorp (+14.9%) 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%.

 

Among the detractors, Oriflame (-23.3%) 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.

 

The restructuring of the Fund’s portfolio of holdings continued as we implemented the results of our annual review of companies’ report and accounts. This month’s changes saw BGEO Group, DFDS, SBanken and Software AG were removed.

 

Positive contributors to performance included:

Tethys Oil (+27.7%), Simcorp (+14.9%) and Kardex (+12.5)

 

Negative contributors to performance included:

Oriflame (-23.3%), Centamin (-21.1%) and International Personal Finance (-15.5%)

 

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

 

 

Mar-18

Liontrust GF European Smaller Companies A5 Acc EUR

1.0

MSCI Europe Small Cap Index

8.3


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


** Source: Financial Express, as at 31.03.2018, 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.


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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.

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, June 11, 2018, 10:19 AM