Liontrust GF European Smaller Companies Fund

November 2018 review

The Fund’s A5 share class returned -6.8%* in euro terms in November (A4 share class -6.8%). This compares with the -3.4% return from the MSCI Europe Small Cap Index.


October’s European stock market weakness carried over into November, with the investor rotation from cyclicals into defensives once again providing a headwind to the Fund’s positioning. The best performing sectors were communication services (+9.6%, recently renamed from telecoms), utilities (+3.9%), health care (+2.2%) consumer staples (+0.4%) and while energy (-5.9%), materials (-5.6%), consumer discretionary (-3.0%) and IT (-2.6%) again suffered falls. The oil price tumbled more than 20% to US$58.7/barrel, not helped by Donald Trump’s public criticism of Saudi Arabia’s mooted plan to cut production.


European markets were unable to stem losses following October’s correction, as long-running macroeconomic concerns overshadowed the month’s major events. US stocks took some impetus towards month-end from Federal Reserve Chairman Jerome Powell’s comments that US rates were closing in on a neutral level. Earlier in the month it had kept rates on hold at 2%-2.25%. European markets, however, were unable to avoid finishing in negative territory for the month. The small cap end of the market fell the most heavily; the MSCI Europe Small Cap Index returned -3.4% compared with the -0.4% of the large-cap equivalent.


As with last month, the Fund’s cyclical tilt left it exposed to the sell-off. The most damaging positions were those in the materials and energy sectors, where the Fund has a combined 30% weight. Ence Energia Y Cellulosa (-25.0%), Altri (-17.2%) and Ferrexpo (-16.2%) were among the heaviest materials sector fallers, while BW Offshore (-32.8%), Hunting (-16.1%) and Soco International (-13.4%) were prominent fallers.


Simcorp’s (-17.3%) vulnerability to widespread weakness in the IT sector was worsened by nine month results which disappointed on profitability. Revenue rose 14% year-on-year in local currency terms to €254m, of which 8.2 percentage points can be attributed to organic growth and 5.5 percentage points the result of the acquisition of an Italian business. EBIT (earnings before interest and tax) rose 22% to €52.5m as constant currency margins rose to 21.5%. With 2018 targets of an EBIT margin in the 24.5% - 27.5% range and revenue growth of 10% - 15%, the company needs a strong Q4 in order to hit its own guidance and investors marked the shares down accordingly.

Ringkjoebing Landbobank (+7.4) was one of a handful of fund holdings to finish in positive territory for the month. The company recently completed a merger with Nordjyske Bank, and initial evidence suggests the merger has progressed well. Q1 results released in November showed a 12% increase in core earnings to DKK841m as total loans grew 6% to DKK32bn.

While Fund returns in October and November have been disappointing, we continue to apply the Cashflow Solution investment process in a disciplined and consistent manner. Within the materials and energy sectors we still see value as corporate aggression levels are low and valuation spreads are still above normal. Furthermore, the relative performance of defensive stocks compared with these more cyclical areas now looks quite extreme, at nearly 2 standard deviations above average. On this basis, a reversion could reasonably be expected. 

Positive contributors to performance included:

International Personal Finance (+22.7%), Detection Technology (+7.9%) and Ringkjoebing Landbobank (+7.4%).


Negative contributors to performance included:

BW Offshore (-32.8%), Ence Energia Y Cellulosa (-24.9%), and Simcorp (-17.2%).

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 30.11.2018, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 30.09.2018, 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.

Friday, December 7, 2018, 4:58 PM