Liontrust GF European Smaller Companies Fund

February 2019 review

The Fund’s A5 share class returned 4.4%* in euro terms in February (A4 share class 4.4%). This compares with the 3.4% return from the MSCI Europe Small Cap Index.


European equity markets extended January’s strong start to the year, adding another 3.4% to take the year-to-date return into double-digits in percentage terms (+10.6%). The rise was supported by the ongoing easing of trade tensions between the US and China, which included speculation that the increase in tariffs scheduled for 1 March would be suspended for another 60 days.


As well as de-escalation of trade worries, the other factor providing market momentum recently has been key central banks’ softening of rhetoric on monetary tightening. Minutes from January’s meeting of the US Federal Reserve’s Open Market Committee confirmed that it is considering a pause to quantitative tightening later in 2019. Comments regarding the path of interest rates seemed to straddle both sides of the fence – some members noting that only higher inflation would necessitate rate rises, with others instead indicating that rate hikes would be appropriate if the economy progressed as expected during the year. Either way, it did not give strong backing to the Fed’s prior ‘dot plot’ for two rate rises in 2019.


While interest ahead of Trump’s Vietnam summit with North Korean President Kim was muted – especially when compared with last year’s meetings between the pair – some late-month volatility was triggered by the abrupt termination of talks which had floundered on the second day. The latest in a seemingly interminable series of Brexit developments saw Theresa May agree to votes on ‘no deal’ and an extension to the 29 March exit date if her revised deal fails to win support in an earlier vote.


Gains on European markets were fairly broad-based: industrials (+5.3%), health care (+5.0%) and finance (+4.8%) were among those sectors to outperform the market average. Real estate (-4.0%), utilities (+0.2%) and communication services (+0.6%) registered the poorest returns.


Following a strong final quarter to the year, in which revenue grew 15%, (+15.7%) recorded a 14% increase in 2018 operating profit to £108m, which was matched by £107m in cash flow from operations. This allowed the company to further increase its total dividend by 6%. The results suggest that the company’s strategic review – branded as Reinvent – is yielding results. Although it has downgraded its core market growth forecast to 4-5%, investors are more focused on the short-term given its new strategy and here there were further reassuring comments: the company is confident of delivering on 2019 market expectations, and the first six weeks of the year were described as encouraging.


Asset management software provider Simcorp (+14.8%) finished the year with strong Q4 sales, up 13% to €129m, while order intake of €61m represented a 23% year-on-year rise. For 2019 it expects revenue growth of between 8% and 13%. 


Evraz (+15.3%) was another of the Fund’s strongest performers in February, after releasing 2018 results which showed an almost 50% rise in free cash flow to US$1.94bn, with much of the gain coming as a result of cost-cutting initiatives. The company also benefitted from what it describes as favourable market conditions which saw an upswing in prices for vanadium and steel products.


However, a selection of the Fund’s other materials sector holdings issued 2018 results that disappointed investors. Precious metals miner Centamin (-21.2%) described 2018 as having an “operationally challenging backdrop”. Average selling prices were stable on 2017, but revenue fell as gold sales dropped 10% to 484k ounces. At the same time, unit cash production costs rose 13% due to the operational gearing effect from a decline in volumes as well as some rising input costs, such as fuel. Cash production costs are forecast to rise again in 2019 while its production guidance of 490k – 520k ounces fell short of investors’ hopes.


Rising metal prices and favourable markets for mineral sands helped French mining group Eramet (-13.3%) increase 2018 sales by 5% to €3.83bn, although EBITDA (earnings before interest, tax, depreciation and amortisation) slipped 3% to €843m, below consensus exceptions. The company cited divisions including High Performance Allots as holding back performance. Net income for 2018 of €129m from paper and pulp manufacturer Ence Energia y Celulosa (-6.6%) – although up 40% on 2017 – was slightly below consensus expectations.


Positive contributors to performance included: (+15.7%), Evraz (+15.3%) and Simcorp (+14.8%).


Negative contributors to performance included:

Centamin (-21.2%), Eramet (-13.3%) and Ence Energia y Celulosa (-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 28.02.2019, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.12.2018, 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. 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.

Tuesday, March 19, 2019, 11:10 AM