Liontrust GF European Smaller Companies Fund

April 2018 review

The Fund’s A5 share class returned 3.6%* in euro terms in April (A4 share class 3.6%). This compares with the 4.1% return from the MSCI Europe Small Cap Index.

After a poor start to the year, European equities registered their first positive month since January. This followed seemingly encouraging developments in the trade tensions between the US and China which had plagued the market in March. While China unveiled retaliatory tariffs of up to 25% on certain US imported goods following on from Trump’s announcements of Chinese import levies in March, there was more optimism that the two nations would avoid a trade war. 

Another source for the market’s gains was the rise in the oil price. North Sea benchmark Brent oil rose to US$75/barrel for the first time since late 2014 with Opec supply cuts continuing to have their intended impact of reducing global inventories and raising prices. Increasing geopolitical concerns also contributed to oil’s latest leg higher, with Trump signalling that he wants to withdraw the US from the Iran nuclear deal.

The rise in oil prices was reflected in the sector breakdown in the MSCI Europe Index where energy (+12.7% in euro terms) was by far and away the largest contributor to the index’s performance. The Fund participated in the energy rally with strong returns from Hunting (+19.0%), Soco International (+13.9%) and Tethys Oil (+13.3%). Additionally, Hunting released a trading update noting that revenue in the first three months of 2018 had been similar to the previous quarter. It added that strong cash generation allowed it to maintain a net cash position of US$3.6m at quarter end despite increases in working capital outflows.

There were a number of first quarter results in April. French mining and metallurgical group ERAMET (+24.8%) saw revenue in the period grow 2% year-on-year helped by strong growth in the spot prices of both manganese ore and nickel, though this was dampened slightly by a decrease in the euro-dollar exchange rate. The company added that positive trends had continued into the second quarter but noted that metal prices are volatile due to escalated tensions and uncertainties in international trade relations. 

Construcciones y Auxiliar de Ferrocarril’s
(-5.2%) Q1 statement was less well received. The Spanish railway vehicle and equipment manufacturer’s earnings before interest, taxes, depreciation and amortisation of €44.4m came in short of the consensus estimate of €49.3m, though revenue of €439m was above the market forecast and was 29% higher than the same period last year. 

Shares in Germany’s Software AG (-3.9%) declined after first quarter sales of €187m at constant currency fell short of the consensus estimate of €202m and represented a fall of 9.4% from the same time last year. Iron ore pellet producer Ferrexpo (-4.0%), meanwhile, reported a 1.6% year-on-year decline in pellet production for the first quarter of 2018. This was down 7.0% on a quarterly basis.  

Away from earnings, Danish shipping and logistics group DFDS (+14.0%) was involved in significant M&A activity. The company agreed to buy UN Ro-Ro Isletmeleri, Turkey’s largest operator of roll-on/roll-off freight ships, for US$1.2bn. The deal would mark DFDS’s largest ever acquisition.

We are undertaking our annual review of companies’ reports and accounts, which dictates the major changes to the Fund’s holdings. This year’s review has so far resulted in the sales of the following: APG, Brembo, Eurocell, Grainger, Hexpol, Liberbank, Momentum Group, Schouw & Co, Straumann Holding, Sydbank and Vontabel Holding.

We added Bossard Holding, Bovis Homes Group, BW Offshore, CIE Automotive, Ence Energia Y Celulosa, ERAMET, ForFarmers Group, Forterra, Hispania Activos Inmobiliarios, International Personal Finance, Kardex, Rightmove, Royal Unibrew and Siltronic.

Positive contributors to performance included:
Hunting (+19.0%), DFDS (+14.0%) and Soco International (+13.9%).

Negative contributors to performance included:
Construcciones y Auxiliar de Ferrocarril (-5.2%), Ferrexpo (-4.0%) and Software AG (-3.9%).

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

 

Mar-18

Liontrust GF European Smaller Companies A5 Acc EUR

1.0

MSCI Europe Small Cap Index

8.3


*Source: Financial Express, as at 30.04.2018, total return (net of fees and income reinvested). Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

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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.

The portfolio is invested in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. 

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.

Friday, May 11, 2018, 4:50 PM