Liontrust European Growth Fund

May 2020 review

The Fund returned 7.2%* in sterling terms in May. The MSCI Europe ex-UK index comparator benchmark returned 7.8% and the average return made by funds in the IA Europe ex-UK sector, also a comparator benchmark, was 8.0%.

 

Stocks in Europe continued to claw back lost ground as countries began tentatively reopening select parts of their economies. Lockdowns across the continent, and other areas of the world, were imposed to contain the spread of Covid-19 but have also strangled economic growth. The easing of lockdown measures and evidence of a suppression in coronavirus cases provided support to equities.

 

However, there are still a number of factors that will keep investors uneasy. Outside of the direct Covid-19 threat, US-China tensions are chief among them. Trump threatened economic measures against China and accused its government of mishandling the coronavirus outbreak. The US-China trade war had been one of the main drags to global growth in the past few years so a resumption of it while the world is battling coronavirus would be unwelcome.

 

The gain made by the MSCI Europe ex-UK Index was broadly split across the sectors. Utilities (+12.2%), industrials (+11.4%) and IT (+10.6%) were the best performers, while real estate (+4.0%), consumer staples (+4.8%) and energy (+5.7%) were the biggest laggards.

 

The biggest contribution to the Fund’s returns came from the consumer discretionary space, within which Pandora (+43.1%) was the standout performer. The Danish jewellery company issued a reassuring first quarter statement which explained that it has enough liquidity to sustain a scenario where all its physical stores remained closed for the rest of 2020. Pandora said that online sales were strong in April and it is gradually reopening physical stores, mainly in Germany. The group also announced that it agreed an additional DKr3bn loan facility and intends to sell 8m treasury shares.

 

New guidance from investment software provider SimCorp (+21.4%) was well received. The company expects 2020 revenue growth of between -5% and +5% but admitted there is still significant uncertainty in the market. Prior to the coronavirus outbreak, it had expected revenue growth of 5%-10%.

 

Bank of Ireland (-9.1%) was the portfolio’s heaviest faller after reporting a swing to an underlying pre-tax loss of €235m in Q1, having suffered from Covid-related market movements and impairment costs. The group revealed that it booked a €266m impairment charge, €250m of which was for a Covid-19 management overlay to reflect the deteriorating economic environment. Further impairments and loan losses are expected throughout the rest of 2020, while lower business activity could lead to 2020 lending volumes being 50-70% of 2019 volumes. Bank of Ireland also saw an additional €155m impact from adverse movements on valuations from the Covid-19 fallout.

 

Stocks in the financial sector have been among the hardest hit by the Covid-19 pandemic. BNP Paribas’ (+16.6%) share price found some relief in May, but still remained well below pre-crisis levels. The French investment bank stated that the crisis has had a significant impact on financial markets and the economic outlook and resulted in the company experienced a €568m revenue hit in Q1. Had it not incurred this impact, revenue in the first quarter of the year would have risen 2.8% year-on-year, rather than falling 2.3%. Based on its current expectations about the outlook for the economy, the group expects 2020 net income to be 15-20% lower than 2019 levels.

 

Positive contributors to performance included:

Lundin Energy (+34.0%), Merlin Properties (+20.8%) and Boliden (+12.8%).

 

Negative contributors to performance included:

Total (-8.9%), Societe Generale (-8.8%) and Peab (-8.4%).

 

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

 

 

Mar-20

Mar-19

Mar-18

Mar-17

Mar-16

Liontrust European Growth I Inc

-8.3

-0.1

0.6

30.3

8.4

MSCI Europe ex UK

-8.3

2.2

3.0

27.2

-5.3

IA Europe Excluding UK

-9.4

-1.2

5.6

23.7

-1.8

Quartile

2

2

4

1

1

 

*Source: Financial Express, as at 31.05.20, 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.

 

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.

Friday, June 12, 2020, 3:01 PM