Liontrust GF European Smaller Companies Fund

April 2020 review

The Fund’s A5 share class returned 11.5%* in euro terms in April. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 11.4%.


European equity markets recovered some ground as the Covid-19 pandemic showed signs of having passed its peak in new cases and deaths in some of the worst hit European countries such as Spain and Italy.


Lockdown restrictions largely remained in place, extending the nosedive in economic activity. Because the duration of these measures remains unknown, the scale of the macroeconomic setback is also uncertain, but Q1 GDP releases gave a taste of what is to come. April data releases showed quarter-on-quarter economic contractions of 9.8%, 4.8% and 3.8% in China, the US and eurozone respectively. For most regions, current restrictions were only in place for the latter stages of the quarter so the slowdown is sharper than these figures show.


The oil market gave perhaps the clearest illustration of this immediate slump in activity, with the US WTI contract for physical delivery in May entering negative territory (falling as low as -US$40 a barrel) as it approached expiry in mid-April. The lack of demand or inventory storage capacity only had such an extraordinary effect on the very short end of the oil futures curve; as the one-month contract rolled into June delivery, the price recovered to US$18.8 a barrel by month end.


The market’s rebound pulled most sectors into positive territory for the month, with only energy (-3.6%) losing ground in the MSCI Europe index. The IT (+9.4%) sector led the way, followed by healthcare (+9.1%).

Within the Fund, some of the worst hit stocks in March showed greatest participation in April’s bounce. Housebuilder Vistry Group (+43.0%) was one of these. A Covid-19 update outlined that it has suspended all discretionary land spend in order to protect its cash position, while work in its Housing division is focused on watertight properties with visibility of completion and cash realisation. The majority of its staff are furloughed but it has begun to resume activity at its Partnerships sites, with work commencing at around 90% of sites. Similarly, building materials group Forterra (+39.1%) recovered from March’s lows as building sites gradually reopen. Having suspended operations in March, Forterra announced at the end of April that it will restart production at one of its brick manufacturing facilities and gradually increase activity.


Nemetschek (+27.0%) is another stock with heavy exposure to the construction industry. The German company provides software to manage planning, design and build phases. It recorded Q1 9.9% organic revenue growth; demand for design products dropped off as a result of Covid-19 but build & manage products still posted good growth. The company maintained its guidance for revenue growth over 2020 based on a Q2 which is materially worse, followed by strong recovery.


BW Offshore (+64.7%) has also recovered from its lows, helped by last month’s news of a five year extension to a rig lease and operation contract from MP Gulf of Mexico which is expected to generate around US$350m of EBITDA. The operator of floating production storage and offloading vessels has also responded to Covid-19 by deferring around US$60m of planned capex on its inactive fleet.


William Hill (+72.1%) was added to the portfolio in April. The stock had fallen sharply during March’s market rout, as the cancellation of sporting events hit its revenue outlook. It had an additional setback as DS Smith’s finance director reneged on an agreement to join the company due to the Covid-19 disruption. Shares in William Hill bounce back swiftly in April and it was able to make new CFO and COO appointments.


Market research group Ipsos (-7.4%) published Q1 results showing a decline in demand for research on consumers, customers and employees as organisations responded to the pandemic in March. There was some increase in demand from public authorities in relation to Covid-19, but this was only enough to ensure flat year-on-year organic revenue and could not prevent a 100bp contraction in profit margins. The company also warned that net order intake is down around 40% on last year’s levels.


The Cashflow Solution investment process involves the forensic analysis of historic cash flows and balance sheet developments in companies’ in their annual report and accounts. As a large proportion of the European company universe have December year ends and release the corresponding reports in March or April, we tend to make a number of portfolio changes around this period in order to reflect the latest cash flow analysis.


Measured by our cash flow yard stick, market valuations remain low on an equally weighted basis. Low valuations in the context of a down-trending market tend historically to point to very positive future returns on a 12 month view. Simultaneously, we have noted that investor anxiety is very high, pointing to the attractiveness of value strategies at this point. Value strategies have of late underperformed dramatically and relative to history it is clear investors are being paid a high premium to accept the risk of the strategy. As a consequence, our annual review has seen a shift to emphasise the more value-orientated of the secondary scores. We use these scores to highlight the best opportunities available within the top quintile of cash flow stocks. Historically, the portfolio has tended to have a negative exposure to value risk factors but this is not the case today. The portfolio changes implemented in April included the sale of Cembra Money Bank, Diploma, Fagron, Kardex and Peab and the purchase of Aggreko, Bank of Ireland, Bekaert, Elior, ISS, Marks & Spencer, Pandora and William Hill.


Positive contributors to performance included:

William Hill (+72.1%), BW Offshore (+64.7%) and Vistry Group (+43.0%).


Negative contributors to performance included:

Ipsos (-7.4%), Peab (-7.1%) and Diploma (-6.6%).


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






Liontrust GF European Smaller Companies A5 Acc EUR




MSCI Europe Small Cap Index





*Source: Financial Express, as at 30.04.20, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.03.20, 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. Investment in Funds managed by the Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Liontrust European Growth Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 


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.

Friday, May 15, 2020, 1:20 PM