Liontrust European Growth Fund

September 2019 review

The Fund returned 1.3%* in sterling terms in September, compared with the 1.0% return from the MSCI Europe ex-UK index.


Global equities staged a recovery from August’s slump as central bank policy again took centre stage. The European Central Bank cut benchmark interest rates further into negative territory and altered its forward guidance to state that rates would remain at these levels or lower until inflation picked up to close to the 2% target. Previously the bank had only committed to avoiding rate rises until mid-2020. It also revived quantitative easing, announcing an open-ended €20bn-a-month programme from November.


The US Federal Reserve cut rates by 25 basis points to a range of 1.75%-2.0%, in a move interpreted as a hawkish cut. The Fed’s indication that further cuts should not be expected drew the ire of President Trump, who launched another twitter attack on Jay Powell. Trump became more incensed as a formal impeachment enquiry was opened later in the month after accusations that he had asked Ukraine to investigate Joe Biden.


Developments in the US-China trade spat continued to be volatile, with both parties announcing some temporary postponement of tariffs before the month finished with speculation the US was exploring ways of limiting investment in China’s financial markets. Political volatility was also an ongoing feature in the UK as Parliament passed an emergency law to stop no-deal Brexit and then blocked Boris Johnson’s attempts to hold a snap election. He proceeded to suspend Parliament, only for the Supreme Court to rule that the move was unlawful.


Oil prices surged following attacks on Saudi Arabian oil facilities that were blamed on Iran. Brent crude rose 15% to US$69/barrel on the day of the attack, before settling down to US$61 by month end. The European energy sector rose 5.0% in September, beaten only by financials (+6.0%) and real estate (+4.5%). Consumer staples (-2.5%) and health care (-0.5%) were the only areas to lose ground in sterling terms.


There was also a significant shift in the style bias to market returns in September, as equities with ‘value’ characteristics markedly outperformed those with ‘growth’ credentials. The MSCI Europe ex-UK Value index returned 3.5%, compared to the -0.6% from the Growth index. It was also notable that momentum-based strategies proved very volatile as market leadership shifted between these groups of stocks.


We have noted surges in both corporate optimism and investor anxiety in the US. Investor anxiety has climbed particularly in sectors vulnerable to a prolonged trade war with China. While these conditions are not replicated in Europe, style and market direction in Europe are highly correlated with developments in the US, so we will monitor developments closely. High investor anxiety often precedes strong performance from value strategies, so while this measure remains elevated we could observe further sharp bouts of style rotation.


Despite the Fund’s tilt towards stocks which we’ve identified as having growth characteristics, it performed fairly robustly during September. We believe that our deployment of secondary cash flow scores when selecting the Fund’s investments allows the portfolio to perform well against a variety of investment style backdrops. As well those with a ‘growth’ secondary score the Fund also has large exposure to ‘recovering value’ and ‘cash return’ style buckets.


Amid the market’s rotation into value stocks and against a backdrop of geopolitical tension in the Middle East, the Fund’s holdings in the energy sector performed well. Gaztransport et Technigaz (+6.7%), Subsea 7 (+5.8%), Total (+5.1%) and Neste (+4.2%). The Fund’s low allocation to the consumer staples sector was another source of positive performance attribution relative to the index as companies with defensive growth credentials were sold down.


These shifts in investor behaviour over the month relegated stock-specific newsflow to secondary importance in driving Fund returns. Of those stocks that did react to corporate news, Technogym (+8.8%) was a positive contributor. Its interim results showed 6.2% constant-currency sales growth driven by a 24% increase in North America and 20% growth in Asia Pacific.


The escalation in tensions in Hong Kong that accompanied the 70th anniversary celebrations of the People’s Republic of China weighed on sentiment towards clothing company Moncler (-5.8%). Its CEO commented that the protests have jeopardised what would otherwise have been a good year for the company


Positive contributors to performance included:

ASML (+10.4%), Mediobanca (+9.2%) and Technogym (+8.8%).


Negative contributors to performance included:

Simcorp (-6.6%), Moncler (-5.8%) and Royal Unibrew (-5.7%).


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 30.09.2019, 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 30.09.2019, 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.

Wednesday, October 16, 2019, 9:51 AM