Liontrust European Growth Fund

July 2019 review

The Fund returned 1.6%* in sterling terms in July, compared with the 1.9% return from the MSCI Europe ex-UK index.


Central banks continued to be at the forefront of market moves. The Federal Reserve promised in June to act as appropriate to sustain the US economic expansion and in July the policy-setting committee deemed that a 25 basis point cut was necessary. This move – the Bank’s first interest rate cut in over a decade – was entirely priced in by markets though there was some outside hope for a 50 basis point cut.


Some investors were therefore disappointed to hear that the July cut was a “mid-cycle adjustment to policy” rather than the start to another series of rate reductions. According to futures markets, three further rate cuts were priced in for in the next 12 months.


There are now also expectations that the European Central Bank (ECB) will lower rates. The Bank adjusted the wording in its July policy statement to declare that rates will remain at present or lower levels at least through the first half of 2020. ECB President Mario Draghi added in his press conference that there is greater expectations for lower inflation and the Governing Council discussed a range of stimulus options including rate cuts.


Defensive sectors came out on top in the MSCI Europe ex-UK Index in July. Consumer staples (+5.4%) was the top performer, followed by utilities (+4.2%). Energy (-0.5%) was the only sector to end lower in sterling terms.


It was a busy month of reporting for the Fund’s holdings, with a number of companies issuing half year results. Italian pharmaceutical group Recordati (+12.6%) and Dutch chip maker ASML Holding (+12.4%) were among the positive performers. The former saw a 6.8% increase in consolidated revenue and a 7.4% rise in EBITDA (earnings before interest, taxes, depreciation and amortisation). The group also highlighted the acquisition of rights to two new treatments: Signifor and Signifor LAR, which are anticipated to generate annual sales of over US$200m. New full year guidance was issued with sales indicated to be in a range from €1.46bn-€1.48bn and EBITDA between €535m and €545m.


Sales in the second quarter for ASML were in line with management expectations, while margins came in ahead. The key focus, however, was on any potential disruptions from the US-China trade wars. While the group’s third quarter net sales estimate of €3.0bn trailed the market’s expectation of €3.2bn, investors were encouraged by management maintaining full year sales guidance.


There was a less positive reaction to a statement by luxury fashion company Kering (-8.1%). It recorded a 12.7% rise in comparable sales in the second quarter of 2019, coming in below the market estimate of 14.5%. Sales in its Gucci brand slowed compared to the very strong sales growth rate recorded last year, though comparable sales still rose 16.3% in the first half of the year.


Metal and metallurgy company Eramet (-24.0%) was the Fund’s biggest disappointment in July. The group’s interim results showed EBITDA declined 29% in the first half of the year, which Eramet attributed to an unfavourable pricing environment for nickel and manganese. This created a negative impact of up to €144m. Second half EBITDA is expected to be significantly higher than the first, although EBITDA for the full year is still expected to be below that of 2018. 

Epiroc (+10.5%) is a leading provider of drilling and tunnelling equipment to the mining industry. Revenue in the second quarter rose 8% to a record high of Skr10.63bn, which was ahead of the market forecast for Skr10.55bn. Operating profit similarly reached record levels, rising 25% to Skr2.26bn. The company said that its customers have been cautious on large investments but they continue to purchase new equipment and activity levels remain robust, demonstrated by a record order book of Skr10.55bn. It reiterated its view that demand levels should remain at current levels for the near future, although Q3 is historically slightly weaker than Q2.   


CIE Automotive’s (-7.3%) shares fell despite releasing solid first half results. The company reported an 11% year-on-year increase in EBITDA and a 14% rise in net income. CIE reaffirmed its long-term objectives despite the uncertain macroeconomic backdrop and aims to continue to add to the two acquisitions it made during the second quarter.


Scandic Hotels Group was sold from the portfolio following a deterioration in its cash flow scores.


Positive contributors to performance included:

Recordati (+12.6%), ASML Holding (+12.4%) and Epiroc (+10.5%).


Negative contributors to performance included:

Eramet (-24.0%), Kering (-8.1%) and CIE Automotive (-7.3%).


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







Liontrust European Growth I Inc






MSCI Europe ex UK






IA Europe Excluding UK













*Source: Financial Express, as at 31.07.2019, 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 03.07.2019, 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. 


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.

Wednesday, August 14, 2019, 3:55 PM