Liontrust European Growth Fund

March 2020 review

The Fund returned -10.9%* in sterling terms in March, compared with the -11.4% return from the MSCI Europe ex-UK index and the -12.2% average return made by funds in the IA Europe ex-UK sector.


Financial markets experienced sharp declines reminiscent of the 2008 Global Financial Crisis (GFC) as coronavirus cases continued to escalate around the world. A number of countries entered lockdown and the human and economic costs of the virus began to mount. Trading was extremely volatile; the VIX “fear index” rose to its highest post-GFC level, sharp downward moves forced equity market circuit breakers into action and selling became indiscriminate.


In the MSCI Europe ex-UK Index, the worst performing sectors were real estate (-23.3%), financials (-23.2%) and industrials (-17.4%), whilst the most resilient were health care (+0.8%) and consumer staples (-1.8%).


Meanwhile, the sharp decline in oil prices (Brent crude -55%, hitting its lowest level since March 2002) put an additional strain on equities. This resulted from a combination of reduced demand during the coronavirus crisis and Saudi Arabia’s decision to ramp up production after OPEC and its partners failed to agree on measures to restrict output.


Having learned lessons from the GFC, central banks were quick to introduce emergency measures, including interest rate cuts, quantitative easing and liquidity support. Governments soon followed with huge fiscal packages aimed at supporting health care systems, businesses which have been materially impacted by the outbreak and individuals. These policies did steady markets from their initial panic, but until lockdowns are eased and businesses are open to operate as normal again, investors are likely to remain on edge.


Danish medical devices company Coloplast (+12.1%) was a bright spot amid the market sell-off. The company updated guidance to reflect its current assumptions for Covid-19. The organic growth forecast for its 2019/2020 financial year was lowered to 4-6% from 7-8%, while operating margins were expected to be 30-31%, compared to guidance of 31% previously. These modest downgrades during a time of unprecedented uncertainty of future cash flows was a better than expected outcome for investors.


Other health care stocks were also a positive area for the Fund, including Novo Nordisk (+7.7%), Recordati (+2.3%) and Roche (+7.7%). The latter confirmed that it has initiated phase III trials of its coronavirus treatment and it had been given emergency use authorisation by the US Food & Drug Administration, which would significantly speed up tests.


An area of negative attribution was the Fund’s exposure to the energy sector. Holdings such as Subsea 7 (-44.3%), Lundin Petroleum (-29.3%) and Tethys Oil (-24.8%) suffered from the sharp oil price decline. Financials were another sector which under pressure during the sell-off and within the portfolio, including Deutsche Pfandbriefbank (-43.5%), Mediobanca (-37.0%) and Societe Generale (-38.4%).


Currently our 12 month outlook is positive. This may seem perverse given the unambiguously down-trending markets we now face. However, the sell-off has been so severe that it has propelled our equally weighted valuation measure of markets to very cheap levels both in Europe and the US. In markets where valuations have hit these extreme levels, historic analysis suggest that downtrends tend not to persist. Such a combination is in fact predictive of the best market returns – albeit with high volatility in returns.


In addition, we noted that the valuation measure of the best quintile of cash flow companies has sunk to levels last seen at the depths of the GFC and the tech bubble. Historically, this has subsequently generated the most attractive returns to the process we have in our records, as the valuations of attractive cash flow companies revert to more normal levels.


Positive contributors to performance included:

Coloplast (+12.1%), Elisa (+11.6%) and Novo Nordisk (+7.7%)


Negative contributors to performance included:

Subsea 7 (-44.3%), Deutsche Pfandbriefbank (-43.5%) and Merlin Properties (-39.5%).


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 31.03.20, 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 31.03.20, total return (net of fees and income reinvested), bid-to-bid, primary 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. 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.

Thursday, April 23, 2020, 8:45 AM