Liontrust GF European Smaller Companies Fund

July 2019 review

The Fund’s A5 share class returned -4.7%* in euro terms in July (A4 share class -4.7%). This compares with the -0.2% return from the MSCI Europe Small Cap Index.


Central banks continued to be at the forefront of market moves. The Federal Reserve promised in June to act as appropriate to sustain the US economic expansion and in July the policy-setting committee deemed that a 25 basis point cut was necessary. This move – the Bank’s first interest rate cut in over a decade – was entirely priced in by markets though there was some outside hope for a 50 basis point cut.


Some investors were therefore disappointed to hear that the July cut was a “mid-cycle adjustment to policy” rather than the start to another series of rate reductions. According to futures markets, three further rate cuts were priced in for the next 12 months.


There are now also expectations that the European Central Bank (ECB) will lower rates. The Bank adjusted the wording in its July policy statement to declare that rates will remain at present or lower levels at least through the first half of 2020. ECB President Mario Draghi added in his press conference that there are greater expectations for lower inflation and the Governing Council discussed a range of stimulus options including rate cuts.


Defensive sectors came out on top in the MSCI Europe Index in July. Consumer staples (+2.9%) was the top performer, followed by utilities (+1.6%) and health care (+1.5%).


The Fund underperformed the market in what was a busy month of corporate updates from holdings. AG Barr (-27.3%) was one the biggest disappointments in July. The soft drink maker released a pre-close update outlining an unprecedented tough year. The group has targeted volume growth amid the introduction of the soft drinks industry levy but admitted that volumes have been below its expectations. Brand specific issues for Rockstar energy and Rubicon added to this pressure, as did poor weather in spring and early summer in Scotland and northern England.


These challenges have meant the company estimates a 10% decline in revenue in the 26 weeks to 27 July 2019. The second half performance is expected to improve but not enough to recover the hit to volume in the first half, meaning profit will likely decline by up to 20% over the full year.


International Personal Finance (-17.0%) continued its recent share price decline following the Polish government’s proposal in June to lower the existing cap on non-interest loan costs. In July, the home credit company’s interim results showed a slight drop in interim pre-tax profit, though revenue increased 7%. Its Mexico business saw pre-tax profit halve, with lower-than-expected agent collections and a softening macroeconomic backdrop taking a toll.


Eramet’s (-24.0%) interim results showed EBITDA declined 29% in the first half of the year, which the metal and metallurgy company attributed to an unfavourable pricing environment for nickel and manganese. This created a negative impact of up to €144m. Second half EBITDA (earnings before interest, taxes, depreciation and amortisation) is expected to be significantly higher than the first, although EBITDA for the full year is still expected to be below that of 2018. 


Price comparison site (-12.1%) reported on an encouraging first half, with group revenue rising 15% year-on-year, ahead of the market. This was partially driven by energy switching, particularly after the energy price cap was increased in the UK. During the year, the company’s cash position remained strong and it paid out £83.4m in dividends, including a £40m special dividend in February. Moneysupermarket maintained that it is confident of meeting market expectations for the year. However some investors were hoping for an upgrade to guidance following a strong first half.


French market research company Ipsos (+9.6%) was one of the highlights in July. The group saw revenue grow 15% in the first six months of 2019, though the highlight was organic growth of 3%, which was strongest in the Asia-Pacific and Americas regions. The company stated that it expects organic growth for the full year to be between 2% and 4%.


Scandic Hotels Group was sold from the portfolio following a deterioration in its cash flow scores.


Positive contributors to performance included:

Ipsos (+9.6%), Tethys Oil (+8.4%) and Ringkjoebing Landbobank (+7.9%).


Negative contributors to performance included:

AG Barr (-27.3%), Eramet (-25.3%) and Fagron (-15.9%).


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 31.07.2019, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 03.07.2019, 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.

Wednesday, August 14, 2019, 3:51 PM