Liontrust GF European Strategic Equity Fund

December 2018 review

The Fund’s A4 share class returned 1.5%* in euro terms in December (A3 share class 1.6%), compared with the -5.5% return from the MSCI Europe Index and -4.5% return from the HFRX Equity Hedge EUR Index.

 

Net exposure at month end was c.35%. European stock markets failed to get into the festive spirit in the final month of 2018, with the MSCI Europe marking its biggest monthly decline since January 2016. This resulted in a particularly strong performance from the short book, which in aggregate saw share price declines that were roughly double that of the MSCI Europe Index. Whereas in the previous two months of 2018 the short book’s positive contribution was offset by a weak long book performance showing as markets fell, December saw the long book prove more resilient to the sell-off, resulting in a stronger performance for the Fund.

 

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 the trade war took a back seat, the themes which caused the poor stock market performance in Red 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 saw Brent crude shed 8.4% over the course of the month and end 38% off its October high. This hurt a handful of the long book’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.

 

As would be expected in such an environment, the Fund’s long book incurred some losses. Cruise operator Carnival Corp (-19.2%) was one of the worst performers after stating that an additional 2.0% fuel cost will compress earnings per share in the first quarter of its 2019 financial year to between 40 to 44 cents. This compares to 52 cents in the same period last year. This overshadowed some solid full year earnings, with total revenue rising 7.8% and net income up 21%.

 

The short book provided a significant tailwind to performance. A French biopharmaceutical company saw a sharp deterioration in its share price after it withdrew its application with the US Food and Drug Administration for its peanut allergy patch. The company stated that conversations with the regulator raised questions about a lack of detail on the manufacturing and quality controls. Another contributor was a UK high performance materials manufacturer, which stated that it expects to report a substantial drop in underlying pre-tax profit for its financial year 2018 as a result of high raw material prices.

 

Performance since launch* (%)

Liontrust European Strategic Equity Performance December 18 

Discrete monthly returns (A4 share class)*

1yr since 25/04/14
Fund -7.1% 14.5%
MSCI Europe -10.6% 14.1%
2018
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 0.7% 1.1% -1.7% 1.5% 1.2% -2.6% 2.0% -2.0% 1.8% -4.2% -6.3% 1.5%
MSCI Europe 1.6% -3.9% -2.0% 4.6% 0.1% -0.7% 3.1% -2.3% 0.5% -5.3% -0.9% -5.5%
2017
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 1.5% 2.0% 0.5% 1.4% -2.1% -2.0% -0.2% 1.6% 0.8% 1.1% -3.3% 3.0%
MSCI Europe -0.4% 2.9% 3.3% 1.7% 1.5% -2.5% -0.4% -0.8% 3.9% 2.0% -2.1% 0.8%
2016
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund -0.6% -0.2% -0.8% -0.7% 0.9% 2.3% 1.1% -1.5% 2.7% 2.7% -2.2% 1.2%
MSCI Europe -6.2% -2.2% 1.3% 1.9% 2.3% -4.3% 3.5% 0.7% 0.0% -0.8% 1.1% 5.8%
2015
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 1.7% 2.4% 1.5% -1.6% 1.3% -1.3% 3.9% -1.6% 2.2% -3.4% 0.8% 0.2%
MSCI Europe 7.2% 6.9% 1.7% 0.0% 1.4% -4.6% 4.0% -8.4% -4.3% 8.3% 2.7% -5.3%
2014 (subsequent to April's change to fund name and objective)
May Jun Jul Aug Sep Oct Nov Dec
Fund 0.2% 0.0% 1.2% -0.2% -0.5% 1.9% 2.4% 0.9%
MSCI Europe 2.5% -0.4% -1.5% 2.0% 0.4% -1.8% 3.2% -1.4%

 

 

 

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

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust GF European Strategic Equity A4 Acc EUR

-7.1

4.2

4.8

6.1

 

Discrete data is not available for five full 12 month periods due to the launch date of the portfolio.

 

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

 

**Source: Financial Express, as at 31.12.2018, total return (income reinvested and net of fees).

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.

Thursday, January 10, 2019, 2:29 PM