Liontrust European Growth Fund

October 2018 review

The Fund returned -9.5%* in sterling terms in October, compared with the -6.1% return from the MSCI Europe ex-UK index.


Market sentiment in October was firmly risk off with the MSCI Europe ex-UK Index hitting its lowest level since the end of 2016. The sell-off in equities was not just confined to Europe, with stockmarkets across the globe recording considerable losses. It is difficult to point to just one catalyst for October’s market performance, and in reality it is likely the result of a number of factors which have been in play for the last few months.


One such component was rising bond yields. The US 10 year treasury yield showed a marked move higher at the beginning of the month as investors priced in a tightening in US interest rates. This resulted in a number of market commentators calling the end of the bond bull market which has been in trend for many decades, though bond yields did fall slightly at the end of the month as investors fled to safe havens.


Perhaps the return of volatility to both equity and bond markets should be unsurprising given the gradual removal of the considerable monetary accommodation provided by global central banks. The European Central Bank has begun winding down its quantitative easing programme, while the US Federal Reserve is shrinking its sizable balance sheet, as well as raising interest rates.


Another factor was concerns over global growth following a number of poor economic data releases, compounded by downgrades to economic growth forecasts by the International Monetary Fund (IMF). Citing hostile trade measures by the US against China and Europe, the IMF lowered its 2018 and 2019 growth estimates to 3.7% from 3.9%.


European markets saw a shift to traditional defensive areas. In sterling terms telecoms (+2.0%), consumer staples (-1.8%), health care (-3.3%) and utilities (-3.8%) were the most resilient to the market slide. At the bottom of the pile were more cyclical sectors such as IT (-9.1%), materials (-8.7%) and industrials (-8.5%).


Given the Fund’s tilt towards cyclical areas of the market, it felt the brunt of the sell-off. Stocks such as pulp and paper manufacturer Stora Enso (-19.6%) and luxury clothing company Moncler (-17.6%) were among the biggest detractors from the Fund, the latter despite reporting some fairly positive Q3 numbers.


Another headwind this month was the performance of energy stocks, which has been (and remains) the best performing sector year-to-date. Lundin Petroleum (-18.7%), Subsea 7 (-12.8%) and Tethys Oil (-10.7%) declined as oil prices slid from four-year highs.


Premium polymer supplier Covestro (-18.6%) also issued third quarter numbers. It recorded a year-on-year increase of 4.8% in sales, of which 3.1% was a result of increasing selling prices. Earnings before interest, tax, depreciations and amortisation (EBITDA) was €859m, a touch lower than the same period last year as sales growth was offset by a decline in margins.


Pharmaceutical company Roche Holding (+2.0%) and snus manufacturer Swedish Match (+1.5%) were among the Fund’s holdings to end in positive territory in October, both benefitting from their defensive qualities.


Positive contributors to performance included:

Roche Holding (+2.0%), Swedish Match (+1.5%) and Software AG (+0.4%).


Negative contributors to performance included:

Siltronic (-23.5%), Stora Enso (-19.6%) and Covestro (-18.6%).


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 31.10.2018, 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 30.09.2018, 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.

Tuesday, November 13, 2018, 12:19 PM