Liontrust European Income Fund

May 2018 review

The Liontrust European Income Fund returned -2.5%* in sterling terms in May, compared with the -0.9% return from the MSCI Europe ex-UK Index.


The main factor which dragged on the Fund’s performance in May was the market fallout from Italian political uncertainty. A dispute between unlikely coalition partners - the right-wing League and the more anarchic 5-Star - and the Italian President over an outright Eurosceptic choice as finance minister threatened to bring new elections, which would most likely have only increased the power of the coalition partners. Markets feared a revival of Euro break-up talk, with all its associated financial chaos, and chose to panic. In reality, the new government is a lot less Eurosceptic in power than in opposition, as is traditional, and backed down over the finance ministry role. The new minister, who was sworn in at the start of June - after this review period addresses - duly confirmed Italy’s place in the Eurozone.


Despite the apparent alarming electoral outcome, we regard the coalition as fundamentally unstable (even by Italian government standards), and would expect it to dissolve in acrimony over the medium-term. At that stage, an empowered League might find itself returned to power with a broader right-wing coalition, more to its tastes. Be that as it may, the immediate programme is quite expansionary, involving front-end loaded corporate tax cuts and a cancellation of a potential VAT rise. The difficulty will come in persuading the EU to permit such a budget, and for that reason the new Italian government must raise as large a number of grievances as possible to trade for budgetary permissiveness. The UK government could learn much on the art of the dealing with the EU commission from Rome. We expect the end result to be greater accommodation from Brussels, however disguised.


In the short-term, the uncertainty caused a sell-off in Italian bonds and stocks. The spread between Italian and German 10 year bonds reached their highest level since 2013 while the MSCI Italy Index recorded an 8.5% decline in May in local currency terms. There was, however, a rally at the end of the month as the crisis abated.


Italy is one of the Fund’s highest country weightings and it felt the weakness in Italian equities. Investment management companies Anima Holding (-18.6%) and Azimut Holding (-10.5%), bank Intesa Sanpaolo (-14.6%) and electric utility company Terna (-9.1%) were the holdings which suffered the most.


Away from Italy, cosmetics company Oriflame Holding (-23.4%) was another poor performer. The company’s first quarter results showed local currency sales rose 8% year-on-year, while net profit declined to €18.7m from €19.5m. However, tough competition in Russia caused a notable slowdown (-14%) in sales, weighing on the stock.


Deutsche Post (-10.2%) also fell on disappointing first quarter earnings. The mailing and logistics group’s earnings before interest and taxes (EBIT) for the period came in 7% short of the consensus estimate while revenue of €14.7bn fell below the €15.3bn market forecast. Earnings were depressed by higher costs associated with its post-eCommerce-parcels division and the expanding investments in its StreetScooter electric delivery vehicle business. Longer-term targets were left unchanged.


Though the overall return of the Fund was negative, there were some good performers among its holdings. Thule Group (+10.7%), which makes products such as roof and bike racks to use on cars and bicycle trailers, continued its appreciation following an upbeat trading update in April. Equinor (+7.1%), which recently changed its name from Statoil, also maintained its momentum from April as it tracked oil prices higher (Brent reached over US$80/barrel).


There were a handful of changes made to the portfolio. Budget airline Ryanair Holdings and bank UBS Group both exited the Fund. They were replaced by Swiss manufacturer VAT Group, which produces vacuum valves that are crucial in the semiconductor manufacturing process, Italian appliance manufacturer De’Longhi, which owns brands such as Braun, Kenwood and exclusively manufactures Nespresso machines, as well as telecommunications company DNA Oyj which benefits from the positive dynamics of the Finnish telephony market, and has a best-in-class network.


Positive contributors included:

Dustin Group (+13.9%), Thule Group (+10.7%) and Equinor (+10.1%).


Negative contributors included:

Intesa Sanpaolo (-14.6%), Deutsche Post (-10.2%) and Terna (-9.1%).


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 31.05.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.03.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.


For a comprehensive list of common financial words and terms, see our glossary here.


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.

Tuesday, June 19, 2018, 10:04 AM