Liontrust European Income Fund

February 2018 review

The Liontrust European Income Fund returned -3.0%* in sterling terms in February, compared with the -2.7% return from the MSCI Europe ex-UK Index.

 

European markets encountered widespread selling in February as trends seen at the end of January intensified. Government bond yields reached multi year highs, stocks sold off and volatility in Europe rose to its highest level since the result of the Brexit referendum as investors fretted over accelerating inflation and the potential for aggressive monetary policy tightening.

 

While in January there was a clear split between defensive and cyclical areas, with defensive sectors underperforming, the weakness was much broader in February. The poorest performing sectors in the MSCI Europe ex-UK Index in sterling terms were real estate (-5.3%), health care (-4.5%), consumer staples (-4.7%) and industrials (-2.9%). IT (+0.8%), energy (+0.1%) and telecoms (-2.1%) were the best performing sectors.

 

Of the detractors, Banca Farmafactoring (-8.7%) fell after the largest private equity holder completed the sale of part of its stake in the Italian financial. Chemicals group BASF (-7.3%) and construction group Vinci (-5.4%) both declined despite reporting in line fourth quarter and full-year results respectively, while Spanish fashion giant Inditex’s (-12.5%) shares fell to a three year low due to concerns that full-year results, which will be released in March, could show a slowdown in sales following a weak second half of the fourth quarter.

 

The Fund’s low weighting to the soft consumer staples sector was a source of positive attribution, while the companies the Fund does hold in the sector showed good returns. Marine Harvest (+17.9%), Orkla (+8.7%) and Oriflame Holding (+9.6%) were stocks which stood out after releasing fourth quarter updates.

 

Orkla, the branded consumer goods company, reported fourth quarter adjusted earnings before interest and taxes ahead of analyst estimates, boosted by a positive currency translation from the weaker Norwegian Krone. Swedish cosmetics company Oriflame reported a 14% local currency year-on-year improvement in sales in the fourth quarter of 2017, helped by the Skin Care and Wellness which continued to record double-digit sales growth.

 

The sale of satellite operator SES was the only change to the Fund in February. We had reduced our position in October just before it revealed a miss in third quarter earnings, which hit the company’s shares reasonably heavily, and we now believe that it faces strategic headwinds which will not soon dissipate.

 

Positive contributors included:

Marine Harvest (+17.9%), Oriflame Holding (+9.6%) and Orkla (+8.7%).

 

Negative contributors included:

Banca Farmafactoring (-8.7%), BASF (-7.3%) and Vinci (-5.4%).

 

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

 

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Liontrust European Income I Acc

12.3

15.1

10.8

0.7

26.2

MSCI Europe ex UK

15.8

18.6

5.1

-0.7

25.3

IA Europe Excluding UK

17.3

16.4

9.3

-0.9

26.1

Quartile

4

3

2

2

2

 

*Source: Financial Express, as at 28.02.18, 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 Funds managed by the European Income team 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. Investment in the Liontrust European Enhanced Income Fund writes out of the money call options to generate additional income. These call options will be “covered”. Unitholders should note that potential capital growth of the Fund would be capped if these call options are exercised against the Fund and the Fund’s capital returns could therefore be lower than the market in periods of rapidly rising share prices.

Disclaimer

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.

Monday, March 19, 2018, 11:17 AM