Liontrust GF European Smaller Companies Fund

December 2017 review

Political developments once again captured investors’ interest in December. After months of negotiation, UK and European delegates settled on a Brexit divorce bill of €40bn-€60bn. This agreement was the main hurdle for the parties to begin trade talks, which are expected to start in 2018. In the US, equities rallied as Donald Trump won his first major legislative victory after his tax reform was narrowly passed through the US Senate and the House of Representatives.


Away from politics, the US Federal Reserve raised interest rates once again, taking its target to between 1.25% and 1.5%, in line with market expectations. Median forecasts from members of the Federal Open Market Committee indicated that they expect interest rates to rise three times in 2018, which would match the number of hikes seen in 2017.


Commodity prices rallied as the year came to a close. The price of copper reached its highest level in almost four years after data from China, the world’s biggest consumer of the metal, showed imports of refined copper increased 19% in November.


Gains on the European market were led by small-caps: in euro terms the MSCI Europe Small Cap Index returned 2.4% compared with 1.3% from the MSCI Europe Mid-Cap Index and 0.7% from the MSCI Europe Large Cap Index.


In the MSCI Europe Index, the materials sector (+4.0%) was one of the best performers in euro terms, joined by real estate (+3.7%) and energy (+2.3%). The utilities sector (-4.1%) was by some margin the biggest faller, ahead of IT (-0.7%) and telecoms (-0.1%).


This pattern was reflected in the Fund through its range of holdings in the materials and energy sectors. Evraz (+17.6%), Ferrexpo (+15.6%) and Centamin (+13.8%), led the way, while Hunting (+10.7%) and Tethys Oil (+6.5%) also experienced good share price returns. Ferrexpo revealed a special dividend payment of 3.3 US cents per share. The payout was possible due to solid trading since the release of its half-year results in August 2017, lower net debt and a strong demand outlook for iron pellets in 2018. The Fund does not have any holdings in utilities or telecoms, two of the weakest areas of the European market. Hunting shares reacted positively to a trading update which included comments that earnings would likely be at the upper end of market forecasts reflecting the strong performance of the Hunting Titan business unit. Notably, cash generation was strong and management commented that covenant suspensions and the restriction on dividends would both be lifted.


We exited the position in John Laing Group following a deterioration in our cashflow investment screen scores.


Positive contributors to performance included:

Evraz (+17.6%), Ferrexpo (+15.6%) and Centamin (+13.8%).


Negative contributors to performance included:

Simcorp (-6.1%), Straumann Holding (-6.0%) and Peab (-5.0%).

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.

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. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.


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.

Wednesday, January 10, 2018, 4:03 PM