Liontrust European Income Fund

April 2018 review

The Liontrust European Income Fund returned 4.3%* in sterling terms in April, compared with the 3.9% return from the MSCI Europe ex-UK Index. 

An improvement in the relationship between the US and China gave relief to equity markets following the ‘Tariff Tantrum’ last month. There was optimism among investors that the two superpowers would reach a trade deal rather than let tensions escalate into a full blown trade war. These developments, as well as a rise in oil prices to multi-year highs, drove stocks in Europe during April. 

For the Fund, the main focus was on first quarter earnings statements from a number of holdings. Eni (+13.7%) and Statoil (+11.7%) saw their shares rise as part of the energy sector rally and also issued Q1 results. The former saw a 31% year-on-year increase in adjusted net profit to €978m, helped by an 8% rise in oil prices. Statoil’s first quarter adjusted net profit rose 36% to US$1.5bn, in line with the market’s expectations. Eldar Sætre, the company’s chief executive, noted that a lower cost base has allowed the company to take advantage of higher oil prices. The European oil majors have taken huge strides in lowering their breakeven oil price in recent years leading to potentially large cash flows if higher prices are sustained.

There were also notable first quarter numbers from Axfood (+11.0%). It revealed a 29% year-on-year increase in sales which was boosted by the acquisition of Eurocash in 2017 and the timing of Easter. This translated into an operating profit increase of 3.8% to SEK435m, beating the consensus estimate of SEK412m. The company added that, with an operating margin of 4%, it remains on track for its long term target of growing ahead of the market. 

Despite the overall gains in the Fund, it was not all positive news for its holdings. BE Semiconductor Industries (-26.2%), saw revenue increase 41% in the three months of 2018 as it continued to make market share gains. However, analysts suggested that the outlook of 10-15% quarter-on-quarter revenue growth for the second quarter was soft versus expectations. We recently initiated a tiny position in this high-quality long term growth stock, and will look to add on weakness.

Thule Group (+11.0%), which makes products such as roof and bike racks to use on cars and bicycle trailers, had a better reaction to its results. The company stated that a favourable product and customer mix offset high raw material costs to drive a 150 basis point improvement in operating margin, resulting in a 14% increase in operating income.  

Orkla (-8.5%) and Gjensidige Forsikring (-6.3%) both declined after issuing results which fell below analyst expectations. Orkla, the Norwegian conglomerate, recorded a 7.5% increase in operating revenue and a 2.3% increase in adjusted earnings before interest and taxes (EBIT). Management commented that the timing of Easter and cold winter led to fewer sales in certain consumer goods while the loss of distribution agreements with Wrigley also hampered trading. Nevertheless, the company maintained its 2018 target for delivering adjusted EBIT growth of 6%-8%. 

General insurer Gjensidige Forsikring reported a 47% decline in pre-tax profit, a result of increasing underlying frequency loss ratios in its private insurance business, which was adversely affected by bad weather. A higher frequency of claims in its commercial business also contributed to profits missing expectations.  

We think the unseasonal weather in Q1 probably negatively impacted both companies and the wider European economy, and we would expect to see this reverse over the coming quarters.

Positive contributors included: 
Statoil (+11.7%), Axfood (+11.0%) and 1&1 Drillisch (+10.1%).

Negative contributors included:
Orkla (-8.5%), Gjensidige Forsikring (-6.3%) and Banca Farmafactoring (-4.7%).

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







Liontrust European Income I Acc






MSCI Europe ex UK






IA Europe Excluding UK












*Source: Financial Express, as at 30.04.18, total return (net of fees and income reinvested), bid-to-bid, institutional 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.The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.


This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, May 18, 2018, 1:44 PM