Liontrust European Growth Fund

April 2018 review

The Fund returned 5.1%* in sterling terms in April, compared with the 3.9% return from the MSCI Europe ex-UK index. 

After a poor start to the year, European equities registered their first positive month since January. This followed seemingly encouraging developments in the trade tensions between the US and China which had plagued the market in March. While China unveiled retaliatory tariffs of up to 25% on certain US imported goods following on from Trump’s announcements of Chinese import levies in March, there was more optimism that the two nations would avoid a trade war. 

Another source for the market’s gains was the rise in the oil price. North Sea benchmark Brent oil rose to US$75/barrel for the first time since late 2014 with Opec supply cuts continuing to have their intended impact of reducing global inventories and raising prices. Increasing geopolitical concerns also contributed to oil’s latest leg higher, with Trump signalling that he wants to withdraw the US from the Iran nuclear deal.

The rise in oil prices was reflected in the sector breakdown in the MSCI Europe Index where energy (+12.8% in sterling terms) was by far and away the largest contributor to the index’s performance. For the Fund, the sector was one of the main sources of positive attribution, with Tethys Oil (+13.6%) and Total (+13.7%) both participating in the rally. 

Subsea 7 (+17.9%), an engineer and services company, also received a lift from higher oil prices. Additionally, the company made a US$2bn bid for US company McDermott International days before the latter was set to vote on a merger with Chicago Bridge & Iron Co. However, just after the end of the review period, the bid was withdrawn after McDermott opted to go ahead with the CB&I merger. Danish shipping and logistics group DFDS (+14.5%) was also involved in M&A activity. The company agreed to by UN Ro-Ro Isletmeleri, Turkey’s largest operator of roll-on/roll-off freight ships, for US$1.2bn. The deal would mark DFDS’s largest ever acquisition.

There were a number of first quarter results in April. French mining and metallurgical group ERAMET (+25.9%) saw revenue in the period grow 2% year-on-year helped by strong growth in the spot prices of both manganese ore and nickel, though this was dampened slightly by a decrease in the euro-dollar exchange rate. The company added that positive trends had continued into the second quarter but noted that metal prices are volatile due to escalated tensions and uncertainties in international trade relations. 

Construcciones y Auxiliar de Ferrocarril (-5.0%) and Atlas Copco (-5.4%) were among the fallers this month after reporting poorly received first quarter results. Spanish railway vehicle and equipment manufacturer CAF’s earnings before interest, taxes, depreciation and amortisation of €44.4m came in short of the consensus estimate of €49.3m, though revenue of €439m was above the market forecast and 29% higher than the same period last year. 

Atlas Copco fell after analysts suggested the company’s adjusted operating profit of SEK4.8bn was slightly weaker than expected. The company also suffered from a negative read across from US construction equipment manufacturer Caterpillar which warned about increasing costs for the rest of 2018.

Separately, Nokian Renkaat (-5.4%) saw its shares ease after the resignation of its CFO, who had worked for the company for 20 years.

We are undertaking our annual review of companies’ reports and accounts, which dictates the major changes to our portfolio holdings. This year’s review has so far resulted in the following sales: Endesa, Hexpol, Hochtief, ING Groep, Investor AB, Liberbank, Skandinaviska Enskilda Banken, Straumann Holding and Sydbank.

We added CIE Automotive, Deutsche Boerse, Elisa, Ence Energia Y Celulosa, ERAMET, Koninklijke Philips, Lundin Petroleum, Natixis, Roche Holding, Siltronic and Swedish Match.

Positive contributors to performance included: 
Eramet (+25.9%), Moncler (+21.5%) and Subsea 7 (+17.9%).

Negative contributors to performance included: 
Nokian Renkaat (-5.4%), Atlas Copco (-5.4%) and Construcciones y Auxiliar de Ferrocarril (-5.0%).

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

 

Mar-18

Mar-17

Mar-16

Mar-15

Mar-14

Liontrust European Growth I Inc

0.6

30.3

8.4

5.2

11.3

MSCI Europe ex UK

3.0

27.2

-5.3

7.0

17.0

IA Europe Excluding UK

5.6

23.7

-1.8

6.9

17.4


*Source: Financial Express, as at 30.04.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.
 
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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.

Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The 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 portfolio.

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.

Friday, May 11, 2018, 5:00 PM