Liontrust European Growth Fund

January 2020 review

The Fund returned -1.0%* in sterling terms in January, compared with the -1.6% return from the MSCI Europe ex-UK index and the -1.7% average return made by funds in the IA Europe ex-UK sector.

 

Despite US-Iran tensions triggered by an airstrike which killed Qasem Soleimani, global equity markets began 2020 on the front foot with US indices pushing to new all-time highs. Investor sentiment was buoyed by the mid-month signing of a ‘phase one’ trade deal between the US and China. As expected, the deal avoided any additional tariffs being levied, in return for some commitments on Chinese purchase of US goods and stricter intellectual property protection.

 

In the second half of the month markets reversed, primarily due to growing concern over an outbreak of coronavirus in the Wuhan district of China. By the end of the month the official death toll had topped 170 and cases had been confirmed outside of China, leading the World Health Organisation to declare an international public health emergency.

 

The global growth outlook had already been clouded by downgrades to forecasts from both the World Bank and IMF so investors began to fret over the economic impact of travel restrictions and other measures to tackle the outbreak.

 

Growth concerns were very apparent through a significant defensive tilt to market returns at the start of the year. The MSCI Europe Index saw a very strong showing from the utilities sector, up 9.0%, while healthcare (+2.0%) and consumer staples (+0.9%) were also solidly in positive territory for the month.

 

Commodity prices reacted swiftly to reflect concerns that Chinese demand would be affected by the coronavirus outbreak. The energy sector dropped 8.3% and the materials sector lost 5.2%. Other cyclical areas of the market such as consumer discretionary (-5.9%) and finance (-3.0%) also fell back. 

 

Last month, we highlighted positive attribution from the Fund’s overweight allocation to the energy sector. With Brent crude dropping 12% in the month, there were significant headwinds to the sector and Lundin Petroleum (-10.3%), Total (-9.8%) and Subsea 7 (-10.2%) all registered losses. However, there were strong returns from Gaztransport et Technigaz (+6.3%) and Neste (+13.6%). Gaztransport et Technigaz – a specialist in liquified natural gas (LNG) containers for shipping and storage – announced new orders to kit out eight vessels. Neste benefitted from a price target increase from an industry analyst.

 

Although industrial equipment manufacturer Atlas Copco (-11.9%) generated 1% organic growth in orders and revenues and a 7% increase in adjusted operating profit growth in Q4, it commented that activity levels in most of its end markets weakened during the quarter. The company also confirmed a downbeat near-term outlook for demand to be “somewhat lower” than in Q4.

Energias de Portugal (+16.1%) was a standout performer within a buoyant European utilities sector. Corporate announcements during January included details of a 19-year agreement for its renewables subsidiary to sell energy produced at Brazil’s Lagoa solar plant and a 50/50 joint venture with ENGIE targeting fixed and floating offshore wind projects.

Following a deterioration in their cash flow scores, positions in Construcciones y Auxiliar de Ferrocarriles and CIE Automotive were sold from the Fund.

Positive contributors to performance included:

Energias de Portugal (+16.1%), Neste (+13.7%) and Elisa (+8.9%)

 

Negative contributors to performance included:

AP Moller-Maersk (-17.3%), Atlas Copco (-11.9%) and Total (-9.8%)

 

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 31.01.20, 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.

Tuesday, February 11, 2020, 2:13 PM