Liontrust GF European Smaller Companies

June 2020 review

The Fund’s A5 share class returned -2.9%* in euro terms in June. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 1.3%.

 

The rebound continued for global equity markets as green shoots started appearing in economic data. The most significant of these positive economic data releases was a hugely surprising US jobs report, which confounded expectations of a decline in non-farm payrolls and a rise in unemployment. In May, the US Bureau of Labor Statistics reported a 2.5m increase in non-farm payrolls, while unemployment fell to 13.3% from 14.7% in April. European data also showed signs of encouragement, with better than expected PMI survey scores from a number of countries across the continent.

 

However, it was not all plain sailing for equities during June. One of the key risks to the economic recovery is a second wave of coronavirus infections and the rise in new cases this month, particularly in the US and China, gave investors cause for concern. The states of Texas and Florida reversed their reopening plans due to mounting cases, while China reinstated lockdown in a province just outside of Beijing.  In a speech before the Committee on Financial Services, Federal Reserve Chair Jerome Powell noted that the path ahead for the US economy is extraordinarily uncertain and it remains heavily dependent on the extent to which the virus’s spread is kept in check. 

 

Members of the European Central Bank’s governing council were equally cautious on recovery prospects. President Christine Lagarde said the virus has caused an unprecedented contraction in eurozone economic activity, as the Bank unveiled new economic projections of an 8.7% real GDP contraction in 2020. The ECB also stated that it would add a further €600bn to its pandemic emergency purchase programme, taking total bond purchases to €1,350bn. 

 

The MSCI Europe’s returns were driven largely by cyclical sectors such as financials (+6.6%) and IT (+5.7%), while health care (-0.7%) was the only sector to end lower, having been one of the best performing sectors since the pandemic started.

 

For the Fund, industrial holdings weighed on performance, with Austrian construction company Strabag (-14.7%), UK-listed scientific instruments company Judges Scientific (-10.1%) and Belgium-based R&D consultant Akka Technologies (-8.2%) all among the Fund’s worst performers despite not releasing any material corporate news. Akka was one of the Fund’s new purchases this month, alongside Keller Group – a London-listed geotechnical contractor.

 

William Hill (-15.6%) commented on an improvement in trading as some sporting events returned, with online revenue falling 3% year-on-year in the five weeks to 9 June, compared to a 21% decline in the five weeks immediately before that period. Retail sales however were entirely eroded due to the lockdown, but William Hill stated that it plans to reopen its retail estate gradually, focussing on areas with the greatest footfall. The company also announced a share placing of c.20% of its existing share capital to shore up its balance sheet.

 

Among the gainers was UK marketing company 4imprint Group (+5.2%), which released a trading update stating that order count had steadily increased in May and June as lockdown restrictions were eased in the US. Additionally, its ratio of new-to-existing customers has remained broadly stable.

 

Bank of Ireland (+12.9%) rebounded from May’s weakness alongside other financial stocks. It also benefited from the Irish general election result, which was seen to provide stability and continuity.

 

Self-storage company Big Yellow Group (+8.6%) said corporate demand has been resilient throughout the lockdown period but short-stay domestic custom was more affected, with customer move-ins and move-outs both falling 50%. This rate started improving as lockdowns eased. Its full-year results covered the 12 months to 31 March 2020 showed a 26% fall in pre-tax profit, largely due to lower revaluation gains on investment properties. Revenue increased 3.1% and was up 3.8% on a like-for-like basis. Big Yellow was sold from the portfolio.

 

Positive contributors to performance included:

Bank of Ireland (+12.9%), Big Yellow Group (+8.6%) and Concentric (+8.0%).

 

Negative contributors to performance included:

William Hill (-15.6%), Strabag (-14.7%) and Nemetschtek (-13.4%).

 

Discrete years' performance** (%), to previous quarter-end:

 

 

Jun-20

Jun-19

Jun-18

Liontrust GF European Smaller Companies A5 Acc EUR

-11.0

-2.7

2.0

MSCI Europe Small Cap Index

-4.1

-4.4

9.8

 

*Source: Financial Express, as at 30.06.20, 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. 

Disclaimer

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.

Monday, July 13, 2020, 9:49 AM