Liontrust European Income Fund

September 2018 review

The Liontrust European Income Fund returned -0.6%* in sterling terms in September, compared with the -0.5% return from the MSCI Europe ex-UK Index.


Italian politics was back in the headlines as the government outlined controversial new spending plans. The populist Five Star and League coalition proposed to run a budget deficit of 2.4% of gross domestic product next year, raising concerns that Italy would breach eurozone spending limits. The plans heightened worries about the country’s economic outlook and sparked a sell off in Italian debt. However equities, on a whole, were more resilient and the portfolio’s Italian holdings made a positive contribution to performance in September.   


As well as Italy, Brexit is another ever present subject that clouds the outlook for Europe. Initial hopes for a deal between the UK and European Union were dashed after Theresa May’s Chequers plan was poorly received at the EU summit in Salzburg. This caused sterling to give up most of the gains it made in the run up to the meeting. Subsequent comments showed that the two parties were still quite far apart in their demands and that risks of a no deal Brexit have now seemingly risen.


For many years, ‘growth’ names have outperformed ‘value’ names in global markets. As US bond yields were once again propelled upwards to the near 3.1% level, we saw the first signs of a reversal in this trend, with some interesting days of value outperformance. If bond yields continue to ascend, it will be interesting to see if this trend continues, given the historic correlation between rising bond yields and value outperformance.


For the MSCI Europe ex-UK Index, the best performing sectors were energy (+4.0%) and financials (+1.9%). The Fund benefited from the strength in financials where it has an overweight position. Highlights included Swedbank (+6.0%), AXA (+6.0%) and SCOR (+14.0%).


French reinsurer SCOR’s share price movement was a result of takeover interest from its largest shareholder Covea. SCOR rebuffed an offer worth €8.3bn, which at the time represented a 21% premium to its share price, stating that a takeover is fundamentally incompatible with its strategy of staying independent. Covea withdrew its offer following talks with SCOR management, but clearly the share is well under-pinned at current levels, and the potential corporate activity may be indicative of how cheap the insurance sector is now looking.


Real estate companies Kaufman & Broad (-11.2%) and Nexity (-9.9%) suffered alongside the rest of the real estate sector (-4.2%), which was the weakest in the MSCI Europe ex-UK Index. At the end of September, Kaufman & Broad released an earnings report for the first nine months of 2018. Management said the company’s performance during the period was consistent with the first half of the year as it revealed revenue growth of 15.7% and an adjusted operating profit increase of 32%. Strong order growth, particularly in the housing division, left the group confident of meeting its full year target of revenue growth exceeding 10% and operating profit increasing by about 9%.


Cosmetics company Oriflame Holding (-12.5%) was another of the Fund’s biggest detractors after concerns about a slowdown in previous growth markets. Additionally, analysts noted that the company’s Mexico business is likely to suffer even more due to losing market share to local companies.


The addition of Kone was the only change to Fund holdings this month. The Helsinki-based engineering company is a leader in the manufacturing and servicing of elevators and escalators. The company has a global reach and is a beneficiary of increasing demand for high-rise buildings in emerging markets, while also benefitting from a stable, high margin income stream from related elevator maintenance business. Recent shareholder activism at peer ThyssenKrupp has also increased the potential for a merger with Kone in the future, which could create the largest elevator manufacturing/servicing company in the world.


Positive contributors included:

SCOR (+14.0%), Equinor (+9.2%) and Marine Harvest (+6.6%)


Negative contributors included:

VAT Group (-13.2%), Kaufman & Broad (-11.2%) and Nexity (-9.9%)


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 30.09.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 30.09.2018, 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 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.




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.

Tuesday, October 23, 2018, 1:01 PM