Liontrust European Income Fund

January 2018 review

The Liontrust European Income Fund returned 1.4%* in sterling terms in January, compared with the 1.1% return from the MSCI Europe ex-UK Index.

For most of the month, bullish momentum in equity markets continued into the new year, with US and European benchmarks hitting new all-time highs. Economic data across Europe supported sentiment on the Continent, with eurozone unemployment falling to its lowest rate since 2009, while German industrial production and trade numbers came in well ahead of market forecasts. Mario Draghi, president of the European Central Bank, further commented on the strength of the eurozone economy. He noted that incoming data confirmed the robust rate of economic expansion and is confident that inflation will meet the bank’s objective of below but close to 2%.


However, the tail end of January saw increased volatility as a global sell-off in government bonds gathered pace. The move was sparked by concerns about rising inflation and the potential for more aggressive monetary policy tightening than the market was previously anticipating. This fed into stockmarkets, with defensive areas of the market worst hit. In the MSCI Europe ex-UK Index, consumer staples (-3.0%), utilities (-2.9%) and real estate (-2.8%) were the worst performing sectors, while financials (+4.4%), consumer discretionary (+2.5%) and IT (+1.4%) were the best.


The most notable returns for the Fund came from its financial holdings in Italy: Azimut Holding (+13.1%), Intesa Sanpaolo (+12.3%) and Anima Holding (+11.6%).


Asset manager Azimut Holding stated that it expects to report a net profit of between €215m and €225m for 2017, which would be the second highest in the company’s history and significantly ahead of consensus expectations. The group closed the year with total assets of over €50bn, 16% higher than in 2016, and helped by net inflows of €6.8bn. The group also confirmed its target of €300m net profit by 2019 and declared a dividend of €2 per share, doubling the payout from 2016. Intesa Sanpaolo shares appreciated after the bank confirmed that it is considering selling its credit-servicing platform and a bad loans portfolio to Sweden’s Intrum Justitia.


Away from financial stocks, Swedish telecom company Telia (+7.1%) reported fourth quarter results. Net sales remained largely flat compared to the same period last year at SEK21.2bn, but beat the consensus estimate of SEK21.0bn. Operating free cash flow generation came in much stronger than market expectations, and a strong outlook for 2018 was provided by management. This allowed the company to raise its ordinary dividend by 15% to SEK2.30 per share, which was not in consensus estimates.


Following a disappointing December, Ryanair (+9.1%) shares rebounded after the low-cost airline company stated that all of its UK pilots agreed to accept its pay deal. The London Stansted pilot base had previously rejected the proposal. The shares were also lifted following a positive read across from peer easyJet which reported upbeat results for the first quarter of its financial year. Ryanair is due to publish an update in February.


Most of the detractors in January reflected sector trends rather than individual stock newsflow. Deutsche Post (-5.7%), Roche Holding (-7.4%) and 1&1 Drillisch (-4.2%) all suffered from their high-yield, bond proxy characteristics.


Positive contributors included:

Azimut Holding (+13.1%), Intesa Sanpaolo (+12.3%) and Anima Holding (+11.6%).


Negative contributors included:

Roche Holding (-7.4%), Deutsche Post (-5.7%) and 1&1 Drillisch (-4.2%).



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 31.01.18, total return (net of fees and income reinvested), bid-to-bid, institutional class.

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.


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, February 16, 2018, 1:29 PM