Liontrust GF European Smaller Companies Fund

November 2020 review

The Fund’s A5 share class returned 18.2%* in euro terms in November. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 15.1%.


Equity markets were in a state of euphoria in November. The causes of the bullish sentiment were the announcements of Covid-19 vaccine candidates which showed 90%+ efficacy and provided hope of a route out of the pandemic.


While a number of European countries entered new lockdowns in early November, Pfizer and BioNTech released successful late-stage trial results for their vaccine candidate, sparking a surge in stock prices. This was followed the very next week by Moderna reporting similarly effective results and throughout the rest of the month other vaccine candidates from around the world also provided promising updates.


In markets, a strong rally ensued in those stocks which had been amongst the hardest hit during the Covid-19 crisis. The best performing sector was energy (+34%), clawing back some of the 51% year-to-date losses prior to November. Financials (+25%) and consumer discretionary (+16%) were the other big gainers. From a style perspective, the vaccine rally provided a major boost for value stocks, a trend we recently wrote about. The MSCI Europe Value Index returned 20% during the month, outperforming both the market and the MSCI Europe Growth Index’s 8.6% return.


The other major market development was Joe Biden’s victory in the US election. The contest was tighter than pre-election polls suggested and the touted “blue wave” failed to materialise, but ultimately the Democratic candidate won the required electoral college votes in a record turnout. Incumbent Donald Trump refused to concede and claimed, without evidence, wide-spread voter fraud. However, Trump’s accusations were largely ignored by investors who concentrated on the prospects of a Democrat leader in a post-pandemic world.


The US election result gave further impetus to value stocks, which was a boon to the Fund’s performance. Among the best performers in the portfolio were Deutsche Pfandbriefbank (+60%), BW Offshore (+62%) and WH Smith (+43%), which had all been hit by the pandemic and the various restrictions imposed to curb its spread.


Whilst the main driver of these companies’ shares was the vaccine news, they also released third quarter results. Deutsche Pfandbriefbank recorded a 7.1% pre-tax profit increase in Q3, partly driven by a rise in net interest and commission income. The company expects a “solid” fourth quarter operating result but remained cautious about the effect of the Covid-19 pandemic to real estate markets and withheld guidance. However, management stated that the business was well positioned to handle this uncertainty given its conservative risk strategy, good capital base and comfortable liquidity position.


BW Offshore’s results showed a decrease in earnings before interest, taxes, depreciation and amortisation (EBITDA) to US$98.1m, from US$116m. This was below consensus estimates of US$116m and was mainly the result of the Yùum K'ak' Náab tanker having to halt production. However, the company was optimistic in its outlook, stating that its floating production storage and offloading (FPSO) fleet should continue to be cash generative despite the disruption to the oil exploration and production market.


WH Smith operates a number of stores in travel hubs such as airports and train stations, and the restrictions significantly reduced footfall in these areas, as well as its high street branches. In November, the company reported a £280m pre-tax loss for the year to 31 August 2020. The group, however, states that it remains in a healthy financial position with ample liquidity and is well positioned as its markets recover.


Vistry Group (+53%) and Bekaert (+41%) were examples of stocks which rallied on positive trading updates. Vistry Group stated that it expects to beat pre-tax profit forecasts of £130m-£140m for its current financial year. The company said it has seen robust demand for new homes despite the second national lockdown, whilst its supply chain has been resilient throughout the pandemic. 2021 is expected to see a much improved trading performance, with pre-tax profit forecast to be £310m as completions in Housebuilding and Partnerships divisions step up. The company also stated it intends to resume dividend payments earlier than expected.


Steel wire transformation and coatings company Bekaert said Q3 was a turning point in most of its markets. Sales were up 24% quarter-on-quarter and down only 2% from the same time last year. Sales were helped by a significant rebound in demand in tyre markets. As a result of this improvement, the company forecasts full year earnings before interest and taxes to be broadly similar to the 2019 level.


William Hill (-2.4%) was the only detractor after private equity group Apollo Global Management Group confirmed media reports that it does not intend to make a bid for the UK-listed bookmaker, leaving US gaming company Caesars Entertainment as the sole suitor. William Hill had accepted a £2.9bn takeover offer by Caesars in September, and we sold the stock from the portfolio ahead of its expected completion.


Positive contributors to performance included:

Akka Technologies (+62%), BW Offshore (+62%) and Deutsche Pfandbriefbank (+60%)


Negative contributors to performance included:

William Hill (-2.4%).


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


**Source: Financial Express, as at 30.09.20, 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. 


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 18, 2020, 4:09 PM