Liontrust GF European Smaller Companies Fund

May 2019 review

The Fund’s A5 share class returned -5.3%* in euro terms in May (A4 share class -5.3%). This compares with the -5.9% return from the MSCI Europe Small Cap Index.


European equities registered their first monthly decline of 2019, following a deterioration in relations between the US and China. Prior to May, it had seemed the two countries were edging towards a trade agreement after months of negotiation and a pause to tariff increases. However, talks broke down and President Trump moved to raise tariffs on US$200bn worth of Chinese goods to 25%. This escalated further as Trump signed an executive order blacklisting Chinese telecoms company Huawei. China retaliated by hiking tariffs on US$60bn worth of US goods.


The resurgence of trade hostilities weighed on market sentiment sparking concerns about global growth once again. The previous bout of tariff increases by the US and China resulted in a cut to growth forecasts by institutions such as the World Bank and investors fretted that the latest protectionist measures could further derail global economic prospects.


The fear in the market resulted in greater demand for defensive assets. German 10-year bund yields turned negative again and hit their lowest levels on record, while safe haven currencies such as the Japanese yen and Swiss franc both rose. A similar split was seen on equity markets where large cap stocks were favoured slightly versus the small cap segment. The MSCI Europe Large Cap Index returned -4.8% in euro terms versus the MSCI Europe Mid Cap return of -5.6% and the MSCI Europe Small Cap’s -5.9%.  


In the MSCI Europe Index, all sectors ended lower in euro terms but defensive sectors such as utilities (-0.2%), health care (-1.2%) and consumer staples (-1.3%) were the most resilient. At the bottom of the sector list were materials (-7.8%), financials (-7.4%) and consumer discretionary (-6.8%).


The Fund performed largely in line with the market during May, despite having an underweight position to the above defensive sectors. Some of its worst performers came in the consumer discretionary space. London-listed housebuilder Bovis Homes Group (-14.2%) was among the fallers as it confirmed it approached its rival Galliford Try with a proposal regarding the potential combination of Bovis Homes and Galliford Try’s Linden Homes and Partnerships & Regeneration businesses for a consideration of £950m. The proposed deal would have been financed with the issuance of new Bovis Homes shares. However, following Galliford Try’s rejection of the bid, the two companies said they were no longer in discussions.


The stock, as well as the rest of the UK housebuilding sector, also came under pressure as the Brexit situation continued to heighten uncertainty. Theresa May’s resignation as prime minister and the a strong showing from the Brexit party in the European elections meant chances of a ‘No Deal’ Brexit increased, which weighed on domestic sensitive sectors such as housebuilders.


Tethys Oil (-12.1%) declined after its first quarter numbers missed consensus estimates. The company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) decreased 20% year-on-year to US$17.2m, missing market expectations of US$19.8m. Tethys highlighted the sharp decline in oil prices in the second half of 2018 and said that even though there has been a recovery in 2019, there is a two month delay until it can benefit from this. The share price was perhaps also negatively affected by a fresh decline in oil prices in May Brent oil declined 8.5%, a result of trade tensions flaring up again.


Diploma (-9.1%) reported an 11% increase in revenue during the six months to 31 March, while pre-tax profit rose 13%. The company, which provides essential technical products and services to the Life Sciences, Seals and Controls industries, stated that revenue rose across all of its businesses though its Controls division was the highlight, posting a 27% increase. However, the group noted macroeconomic uncertainties and signs of slowing activity in the Industrial Seals market though it remains on track to meet expectations for the full-year.


One of the Fund’s holdings to end higher during May was Ringkjobing Landbobank (+2.8%). The Danish bank stated that its recent merger with Nordjyske Bank is going smoothly, with the completion of IT conversions in March eliminating the “last of the major operational risks”. Its first quarter earnings were also pleasing for the market, with pro forma profit before tax of Dkr322m, coming in ahead of the consensus estimate of DKr291m.


We continued to implement the changes from our annual review by adding a new position in French natural gas transportation company Gaztransport & Technigaz.


Positive contributors to performance included:

BW Offshore (+15.1%), A.G. Barr (+9.7%) and Rightmove (+4.9%).


Negative contributors to performance included:

Dassault Aviation (-16.2%), Nemetschek (-16.2%) and Concentric (-16.1%).


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 31.05.2019, 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. 

Monday, June 17, 2019, 1:29 PM