Liontrust European Growth Fund

May 2019 review

The Fund returned -3.8%* in sterling terms in May, compared with the -2.0% return from the MSCI Europe ex-UK index.


European equities registered their first monthly decline of 2019, following a deterioration in relations between the US and China. Prior to May, it had seemed the two countries were edging towards a trade agreement after months of negotiation and a pause to tariff increases. However, talks broke down and President Trump moved to raise tariffs on US$200bn worth of Chinese goods to 25%. This escalated further as Trump signed an executive order blacklisting Chinese telecoms company Huawei. China retaliated by hiking tariffs on US$60bn worth of US goods.


The resurgence of trade hostilities weighed on market sentiment, sparking concerns about global growth once again. The previous bout of tariff increases by the US and China resulted in a cut to growth forecasts by institutions such as the World Bank and investors fretted that the latest protectionist measures could further derail global economic prospects.


The fear in the market resulted in greater demand for defensive assets. German 10-year bund yields turned negative again and hit their lowest levels on record, while safe haven currencies such as the Japanese yen and Swiss franc both rose. A similar split was seen on equity markets where there was a clear preference for defensive sectors. In the MSCI Europe ex-UK Index, the best performing sectors in sterling terms were utilities (+4.0%), consumer staples (+3.3%), health care (+1.8%) and communication services (+1.2%). At the bottom of the sector list were materials (-5.6%), financials (-4.9%) and industrials (-4.3%).


The Fund underperformed in this environment, given its growth bias and low relative weighting to defensive sectors. Holdings in the materials sector such as Boliden (-16.5%) and Eramet (-15.5%) were among the worst performers, while French aircraft manufacturer Dassault Aviation (-13.4%) fell as part of the weakness in industrials.


Shipping container company AP Moller-Maersk (-15.1%) felt the strain from global trade tensions. In a first quarter update it said trans-Pacific trade volumes between North America and Asia had begun to decline and new tariffs could cause a one percentage point drop in expected growth in global container volumes. The company maintained its guidance for 2019 EBITDA (earnings before interest, taxes, depreciation and amortisation) at US$5bn, which is less than consensus expectation of US$5.5bn.


Oil prices were also hit by the trade conflict, with Brent oil declining 8.5% during the month, weighing on the Fund’s holdings in the energy sector: Tethys Oil (-9.6%) and Lundin Petroleum (-14.1%). Additionally, Tethys reported a 20% fall in EBITDA to US$17.2m in the first quarter of 2019, missing market expectations of US$19.8m. Tethys highlighted the sharp decline in oil prices in the second half of 2018 and said that even though there has been a recovery in 2019, there is a two month delay until it can benefit from this.


Lundin Petroleum’s share price fell despite delivering first quarter results which were marginally ahead of consensus. The Norwegian oil exploration and production company’s EBITDA came in at US$406m, compared to the market’s estimate of US$399m.


There were however some bright spots in May. The Fund’s two telecom holdings Elisa (+8.4%) and Telenor (+8.4%) both provided an uplift to performance. Sporting goods company Adidas (+16.5%), was the standout performer after posting strong first quarter results. Revenue grew by a modest 4% but its performance in China, a target growth area for the group, was a highlight with sales growing by 16%. Margin expansion was also pleasing, with gross margins improving by 2.5 percentage points to 53.6%, ahead of Adidas’s full year target of 52.0%.  


We continued to implement the changes from our annual review by adding a new position in French natural gas transportation company Gaztransport & Technigaz.


Positive contributors to performance included:

Adidas (+16.5%), Elisa (+8.4%) and Telenor (+8.4%).


Negative contributors to performance included:

Boliden (-16.5%), AP Moller-Maersk (-15.1%) and Lundin Petroleum (-14.1%).

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 31.05.2019, 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 31.03.2019, 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. 

Monday, June 17, 2019, 12:34 PM