Liontrust GF European Smaller Companies Fund

August 2020 review

The Fund’s A5 share class returned 11.0%* in euro terms in August. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 5.7%.


July’s fall was seemingly just a blip in the extraordinary recovery seen in global equity markets since the initial coronavirus crash. From the market trough at the end of March, the MSCI Europe Index has returned 31% in euro terms.


A large driver of these gains has been the significant monetary and fiscal stimulus from central banks and governments around the world. In August, Federal Reserve Chair Jerome Powell gave markets an indication that the monetary support will continue for some time yet. In a speech made during the Jackson Hole central bank summit, Powell said that the Fed will be more tolerant of temporary increases in inflation above its 2% target to ensure that average inflation continues to trend at 2% over time. This new policy, which Powell described as “flexible” average inflation targeting, will likely see interest rates remain at current rock bottom levels even if the US inflation starts to accelerate.


Cyclical sectors led the way in Europe during August. Consumer discretionary (+8.1%), industrials (+7.0%) and materials (+4.2%) were the best performers, while utilities (-1.4%), health care (-0.7%) and consumer staples (-0.5%) were the only sectors to end the month lower.


August also saw value stocks outperform. The MSCI Europe Value Index rose 3.4% in euro terms compared to the MSCI Europe Growth Index’s 2.5% return. The Fund has a value bias and it significantly outperformed both the MSCI Europe and MSCI Europe Value indices in August.


UK bookmaker William Hill (+67%) was the best performer in the portfolio. Its interim results showed the heavy toll of the Covid-19 disruption on sporting events and the closure of retail outlets, with a 32% fall in net revenue during the first half of the year. The company confirmed that it would permanently close 119 stores, as it aims to merge its UK online and retail divisions. The performance of the business has improved since sport has returned and this has continued into the early part of the second half of the year, with the group generating positive free cash flow.


Temporary power company Aggreko (+25%) also saw a strong share price rise, despite reporting on a difficult first half of 2020. The group reported a 13% decline in revenue and adjusted pre-tax profit reflecting the impact of Covid-19 and low oil prices. It stated that conditions remain difficult in the oil & gas and events sectors, and expects full year adjusted pre-tax profit to be in the region of £80m-£100m.


WH Smith (+26%) stated that there have been early signs of a recovery in both its Travel and High Street businesses, but they continue to operate significantly below last year’s levels, as footfall remains low. As a result, the company has stepped up cost cutting measures which are estimated to result in costs of between £15m-£19m. It now guides to a pre-tax loss of between £70m-£75m for the year ending 31 August 2020.


Marketer of promotional merchandise 4imprint Group (-8.0%) was one of only four holdings to end the month lower. The group suffered a 34% fall in revenue in the first half of the year, while underlying profit was largely wiped out as trading was severely disrupted by the Covid-19 crisis. It also cancelled its dividend in the face of the ongoing uncertainty. However, the group emphasised that the liquidity position of the company remains robust and it is confident that the business model will resume its previous growth rate.


Facilities management company ISS (-1.1%) also said its financial performance has suffered due to Covid-19 as well as a malware attack. Organic growth declined 9.9% in the second quarter of 2020, despite strong demand for its deep cleaning and disinfection services. The company said organic sales for the year as a whole are expected to fall between 2% and 10%, while operating margins are forecast to be marginally positive.


Building materials supplier Forterra was sold from the Fund as its cashflow scores deteriorated. New positions were opened in UK-listed sustainable asset manager Impax Asset Management and German cloud-based workforce management company ATOSS Software.


Positive contributors to performance included:

William Hill (+67%), WH Smith (+26%) and Aggreko (+25%)


Negative contributors to performance included:

4imprint Group (-8.0%), Akka Technologies (-6.6%) and ISS (-1.1%).


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 31.08.20, 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). 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.


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. 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.

Thursday, September 17, 2020, 4:07 PM