Liontrust European Growth Fund

February 2020 review

The Fund returned -6.6%* in sterling terms in February, compared with the -5.4% return from the MSCI Europe ex-UK index and the -6.2% average return made by funds in the IA Europe ex-UK sector.

 

The month was dominated by reports documenting the spread of coronavirus and government actions to contain it. In February, cases of the disease outside of its origin in Wuhan became more frequent and, in Europe, Italy was the worst struck – leading its government to cancel the Venice festival and impose a quarantine across a number of towns.

 

Investors focused on the potential impacts from the disruption caused by coronavirus on economic activity. Though little is still known about the disease, investors are anticipating a significant hit to the global economy and possibly significant stimulus from national authorities.

 

The result in markets was a broad-based sell-off in equities, while defensive safe havens such as gold and bonds saw greater interest. The most resilient sector in the MSCI Europe ex-UK Index was utilities (+0.5%), while energy (-10.2%) was the worst hit as oil prices came under pressure. 

 

The Fund’s exposure to the energy sector weighed on returns. The likes of BW Offshore (-19.8%), Tethys Oil (-18.8%) and Total (-10.8%) were among the heaviest fallers. Coronavirus also caused BW Energy, a spin-off of BW Offshore’s exploration and production business, to reduce its valuation target for its initial public offering.

 

The expected reduction in consumer spending hit retailers. Adidas (-10.0%) warned that its business activity in China had been running 85% below prior-year levels since the Chinese New Year due to the virus. It had also seen traffic declines in other areas in Asia.

 

One of the few gainers was Coloplast (+9.1%). The Danish medical devices company saw a 13% increase in earnings before interest and taxes (EBIT) in the first quarter of its financial year (three months to 31 December 2019), while organic growth was 8%, which was in-line with full year guidance of 7-8%. The company noted that it is monitoring the coronavirus outbreak but the financial impact is uncertain. 

 

Italian pharmaceutical company Recordati (+2.8%) and Finnish oil refining company Neste (+2.0%) both released 2019 results. Recordati’s EBITDA (earnings before interest, taxes, depreciation and amortisation) rose 9% to €544m, while net income rose 18% to €368.8m, which included a €35.3m tax benefit. The company added that it aims to reinforce its rare diseases pipeline in 2020, and estimates EBITDA of between €580m-€590m.

 

Neste’s fourth quarter operating profit was €781m, ahead of the market forecast of €720m, driven by higher sales volumes. For 2019 as a whole, the group posted record high operating profit of €1.96bn, while its Renewable Products division saw operating profit surge to €1.85bn from €895m in 2018. 

 

SimCorp’s (-11.1%) update was less well received. The investment software company reported solid 2019 results, with revenue growing 19%, while EBIT rose 24%. However, investors were disappointed with its soft guidance for 2020, where the company anticipates revenue growth of 5-10%. It added that it will be increasing research and development expenditure to 20% of revenue.

Positive contributors to performance included:

Coloplast (+9.1%), Recordati (+2.8%) and Peab (+2.2%)

 

Negative contributors to performance included:

AP Moller-Maersk (-20.0%), Tethys Oil (-18.8%) and SimCorp (-11.1%).

 

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

 

 

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust European Growth I Inc

24.6

-12.8

11.8

26.2

8.8

MSCI Europe ex UK

20.0

-9.9

15.8

18.6

5.1

IA Europe Excluding UK

20.3

-12.2

17.3

16.4

9.3

Quartile

1

3

4

1

3

 

*Source: Financial Express, as at 29.02.20, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.19, total return (net of fees and income reinvested), bid-to-bid, primary class.

 

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, March 12, 2020, 9:19 AM