Liontrust GF European Smaller Companies Fund

March 2019 review

The Fund’s A5 share class returned 1.8%* in euro terms in March (A4 share class 1.8%). This compares with the 1.4% return from the MSCI Europe Small Cap Index.


The same factors behind the market’s year-to-date rise were at play again in March: easing US-China trade tensions and more dovish central bank policy. Starting with the former, President Trump declared that the trade negotiations with China were “coming along nicely” though he stated that current tariffs will remain in place until he’s sure Beijing will comply with any potential agreement. The trade war, which escalated in 2018, has dragged on global economic growth, so any indication that there could be a benign resolution tends to lift markets around the world.


Central bank policy has been a key feature for markets. Since the turn of the year, the US Federal Reserve has communicated a more “patient” approach to adjusting its monetary stance. In March, the Federal Open Market Committee’s estimates for future interest rates implied zero rate increases in 2019, which was scaled back from two forecast rises back in December. The policy setting committee also confirmed it would pause quantitative tightening by the end of September, citing slowing economic growth, household spending and business investment during the first quarter.


The European Central Bank also made a small adjustment to its forward guidance. It had previously stated that interest rates would remain at present levels until summer 2019, but in March the Governing Council guided that rates will be on hold until the end of 2019 as inflation remained sluggish in the euro area. The bank also unveiled new targeted longer-term refinancing operations (TLTRO-III) to boost the banking system.


These central bank moves provided a broad uplift to markets, with defensive sectors leading the rise. Consumer staples (+7.2%) was the best performing sector, while health care (+4.3%) and utilities (+3.1%) also posted strong returns. The only sector to register a decline was financials (-2.0%), as banks typically benefit from higher interest rates.


Russian steel maker Evraz (+14.9%) was one of the Fund’s main contributors after releasing consensus beating full-year results for 2018, which it published in late February. Among the highlights was a marked improvement in free cash flow to US$1.94bn from US$1.32bn in 2017. In the past few years, the company (and the entire sector) has worked hard to reduce costs. In the results, Evraz’s management noted that its low net debt and “superior cost base” mean it will be well buffered against any potential market downturns.


Floating production storage and offloading (FBSO) vessels specialist BW Offshore (+15.8%) saw its share price appreciate after announcing an agreement to acquire 70% of the Maromba offshore field in Brazil for US$90m. The company estimated potential resources of “100 to 150 million barrels of low sulphur 16 API oil”.


Among the fallers was Spanish pulp producer Ence Energia y Celulosa (-20.4%). The stock dropped after the Spanish General State Administration moved to nullify a 2016 resolution which granted Ence an extension of the concession of lands for the company’s Pontevedra plant. Ence estimated that the maximum impact of halting activities at this plant would be €185m, though it doesn’t expect this outcome to occur.


Dutch animal-feed company ForFarmers (-10.9%) and Italian fashion brand Brunello Cucinelli (-10.5%) both saw their share prices slip following poorly received 2018 results. ForFarmers’ numbers fell short of market expectations, with underlying EBITDA (earnings before interest, taxes, depreciation and amortisation) of €100m 2.3% below forecasts. The company also commented that it expects underlying EBITDA in the first half of 2019 to show a significant decline compared to 2018, which it said was due to unfavourable purchasing positions. For Brunello Cucinelli, full year numbers were largely in line with consensus with an EBITDA rise of 8.8% while revenues rose by a similar amount, 8.1%. However, analysts were disappointed with the management’s guidance for another 8% rise in 2019, given that previous year’s guidance have been for double digit top line growth.


We began phasing in the changes from our annual review of companies’ reports and accounts towards the end of the first quarter. As a result of this year’s review so far we have exited positions in Centamin and Ence Energia y Celulosa. We bought Concentric and Fagron.


Positive contributors to performance included:

Nemetschek (+18.4%), BW Offshore (+15.8%) and Evraz (+14.9%).


Negative contributors to performance included:

Ence Energia y Celulosa (-20.4%), Dassault Aviation (-11.2%) and ForFamers (-10.9%).


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 31.03.2019, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.03.2019, 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.

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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.
Wednesday, April 17, 2019, 1:49 PM