Liontrust European Opportunities Fund

H1 2020 review

The Liontrust European Opportunities Fund returned -12.0% over the period under review, compared to -2.6% from the MSCI Europe ex UK Index and -2.1% from the IA Europe ex UK sector*.

The first six months of 2020 was a real tale of two halves with the collapse in equity markets in the first quarter followed by a sharp recovery in the second. The acute stage of the coronavirus panic and market selloff began on February 23rd, when Italy reported an outbreak in its northern regions. At this point it became clear that the virus was not a regional concern but a global pandemic. The ensuing collapse of the OPEC+ talks sent Brent crude prices down to $30/bbl which put further pressure on global equities. Fuelled in no small part by large-scale fiscal and monetary stimulus, markets have recovered much of the decline suffered as the pandemic swept across the globe.

After falling by 17.5% during the first quarter, the MSCI Europe ex-UK Index end the first half down 2.6%. Given the swift nature of the sell-off and sharp downgrades to economic growth and earnings estimates following the sudden stop in the global economy, it was more cyclical sectors that led the way down. Financials, energy and industrials were the worst performing sectors, with healthcare, consumer staples and utilities being more defensive. As the market recovered, both leaders and laggards contained a mix of lockdown winners and losers, with food and beverage, travel and leisure, and real estate among the laggards, while tech, autos and industrials led the rebound. Investors are still working out the extent of the longer term damage done to those sectors and companies most impacted by the Covid lockdowns while assessing what a new normal may look like as economies reopen. Even as economies have opened up in recent months, cases in Europe ex-UK are just 15% above the lows of early June (and down more than 80% from the peak) and deaths are down by 97% from April. At this stage there are no clear signs of a second wave as countries emerge from lockdown.

Important progress was made on both the fiscal and monetary fronts during the second quarter, with the ECB expanding its Pandemic Emergency Purchase Program by 80% to €1.35tn in June, and the European Council is set to announce the terms of its Recovery Fund (the New Generation EU project) in July, which is expected to be €750bn made up of €500bn in grants and €250bn in loans.

The Liontrust European Opportunities Fund returned -12.0% during the first half of the year. With the dislocation in valuations between cyclical and defensive sectors that we had witnessed prior to the coronavirus crisis, and which were exacerbated during the first quarter selloff, we continue to find the most interesting ideas in some of the more cyclical parts of the market. Our focus has been on the liquidity and balance sheet strength of our holdings to ensure they are well positioned to manage the crisis and benefit from the subsequent recovery. There will be important structural changes to both economies and companies as a result of how this crisis has changed the way we do business and changed consumer habits. It is vital to distinguish between those companies who may appear cheap but whose earnings capacity has been permanently impaired, and those whose shares have sold off because of the current recession but who remain well positioned to grow earnings and generate attractive returns for shareholders as the economy recovers.

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

 

 

Jun-20

Jun-19

Jun-18

Jun-17

Jun-16

Liontrust European Opportunities C Acc GBP

-12.5

-6.9

-1.0

62.5

-12.4

MSCI Europe ex UK

0.0

7.3

1.8

28.0

4.9

IA Europe Excluding UK

0.9

3.3

3.1

29.2

4.5

Quartile

4

4

4

1

4

 

*Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 30.06.20, total return (net of fees and income reinvested) 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 Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

Disclaimer

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.

Thursday, July 16, 2020, 3:28 PM