Liontrust GF European Smaller Companies Fund

July 2020 review

The Fund’s A5 share class returned -0.9%* in euro terms in July. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 1.1%.


Investors were perturbed by the surge in Covid-19 infections in the US, particularly in southern and western states like Florida and California, forcing President Trump to admit the outbreak would “get worse before it gets better”. An initial estimate of the US economy in Q2 showed a 9.5% year-on-year contraction. The Federal Reserve’s rate-setting meeting saw rates held close to zero and emergency lending facilities extended. With coronavirus concerns clouding the outlook for economic recovery, the US dollar slid to a two-year low; the Dollar Index dropped by more than 4% in July.

There were also signs of a resurgence in coronavirus infections in China during July, as its economy continued to recover from the first wave; China’s GDP grew 3.2% year-on-year in Q2. 

In Europe, sentiment was boosted by a €750bn post-pandemic recovery fund that was agreed at a summit of EU leaders, the longest since 2000. This came against a backdrop of downgraded economic expectations as the European Commission cut its EU economic growth forecast to -8.3% this year, worse than its previous estimate of -7.4%. It also trimmed its predicted recovery in 2021 from 6.1% to 5.8%. The commission cited a more gradual lifting of containment measures than it had expected.

Within the MSCI Europe Index there were few discernible sector trends, with the typically defensive utilities (+3.5%) sector posting the best gain followed by the more cyclical materials sector (+2.1%). There was further notable weakness in the energy (-8.9%) sector, while communication services (-5.4%) was also a reasonably heavy faller.


Royal Unibrew (+16%) continued to rise after the June reinstatement of its 2020 financial guidance. The company now expects operating profit of between DKr1.25bn and DKr1.38bn, down from its pre-coronavirus forecast of DKr1.47bn. The relatively modest cut to guidance is based on the assumption of a slow reopening of economies and no second wave of Covid-19.


Gaztransport et Technigas (+15%) announced a number of new order wins in July, including an agreement with Chinese shipyard HudongZhonghua Shipbuilding for the tank design of three new LNG carriers. It also released interim results showing a near doubling of operating profit to 133m after a 66% increase in sales to 204m. The sales increase was driven by a sharp rise in work for LNG carriers. It now has an order book comprising €832m in revenues over the next three years made up of 135 units of construction, of which 112 are for LNG carriers.


A Q2 trading update from Pandora (+11%) revealed that 86% of stores were open by the end of June, up from 20% in April. Over the quarter, sales were 40% lower than in Q2 2019, notwithstanding a 176% jump in online revenues. However, trading improved through the quarter and the company expects operating profit excluding restructuring costs to be roughly breakeven – an improvement on the loss forecast in early May. Although financial guidance for 2020 is still suspended, the company did comment that current trends, with no further lockdowns in key markets, would put it on course for positive operating profit.


Despite the impact of Covid-19, Swedish digital consultancy Know IT (+18%) was able to increase both sales (+1.5% to SKr858m) and operating profit (+11% to SKr73m) during Q2, an achievement made possible by significant staff cost support from the Swedish government. The majority of its business is in systems development for clients, which can be completed with Know IT’s staff working remotely. It commented that demand for its services from the manufacturing industry has fallen substantially but that clients such as the public sector, insurance and telecoms have been stable.


Engineering and technology consultancy group Akka Technologies (-38%) thought it had seen the peak of Covid-19 disruption in April but conditions continued to deteriorate in May, pushing revenue down 20% on an organic basis in the first half of 2020. This top line performance is worse than it had expected and will push it to an operating loss. The majority of Akka’s sales come through its Mobility sector within which demand from automotive and aeronautics customers was particularly weak as their sites remained closed for a prolonged period, offsetting positive demand in defence and railways.


Shares in Forterra (-22%) weakened during the month after it placed 14% of its share capital on 1 July at a price of 195p – a 6% discount to the prevailing price. The transaction raised gross proceeds of £55m, bolstering its balance sheet against further Covid-19 downside and allowing it to refinance its bank borrowing facilities with relaxed covenants.


Positive contributors to performance included:

Know IT (+18%), Royal Unibrew (+16%) and Gaztransport et Technigas (+15%)


Negative contributors to performance included:

Akka Technologies (-38%), Forterra (-22%) and Deutsche Pfandbriefbank (-17%).


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 31.07.20, 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.


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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, August 11, 2020, 10:21 AM