Liontrust GF European Smaller Companies Fund

October 2018 review

The Fund’s A5 share class returned -9.2%* in euro terms in October (A4 share class -9.3%). This compares with the -7.6% return from the MSCI Europe Small Cap Index.


Market sentiment in October was firmly risk off with the MSCI Europe Index hitting its lowest level since the end of 2016. The sell-off in equities was not just confined to Europe, with stockmarkets across the globe recording considerable losses. It is difficult to point to just one catalyst for October’s market performance, and in reality it is likely the result of a number of factors which have been in play for the last few months.


One such component was rising bond yields. The US 10 year treasury yield showed a marked move higher at the beginning of the month as investors priced in a tightening in US interest rates. This resulted in a number of market commentators calling the end of the bond bull market which has been in trend for many decades, though bond yields did fall slightly at the end of the month as investors fled to safe havens.


Perhaps the return of volatility to both equity and bond markets should be unsurprising given the gradual removal of the considerable monetary accommodation provided by global central banks. The European Central Bank has begun winding down its quantitative easing programme, while the US Federal Reserve is shrinking its sizable balance sheet, as well as raising interest rates.


Another factor was concerns over global growth following a number of poor economic data releases, compounded by downgrades to economic growth forecasts by the International Monetary Fund (IMF). Citing hostile trade measures by the US against China and Europe, the IMF lowered its 2018 and 2019 global growth estimates to 3.7% from 3.9%.


European markets saw a shift to traditional defensive areas. In euro terms, telecoms (+0.4%), utilities (-2.0%), consumer staples (-2.0%) and health care (-2.4%) were the MSCI Europe sectors which were most resilient to the market slide. At the bottom of the pile were more cyclical sectors such as IT (-8.7%), industrials (-8.5%) and materials (-7.0%).


The sell-off also hit the smaller cap end of the market harder. Compared to the MSCI Europe Small Cap’s total return of -7.6%, the MSCI Europe Mid Cap Index returned -7.4% and the MSCI Europe Large Cap Index returned -4.8%. 


Given the Fund’s small cap focus and its tilt towards cyclical areas of the market, it felt the brunt of the sell-off. Stocks such as automated storage and logistics company Kardex (-21.9%), paper and pulp manufacturer UPM-Kymmene (-16.0%) and industrial fastener engineer Bossard Group (-16.1%).


The latter two companies also released disappointing third quarter updates. UPM’s adjusted earnings before interest and taxes (EBIT) grew to €420m from €351, in the same period last year, but fell short of the consensus estimate of €447m. Bossard meanwhile issued disappointing sales guidance for its full-year. It stated growth will be hampered by a strong Swiss franc, tough comparators from the previous quarter and customers already operating at full capacity.


Another headwind this month was the performance of energy stocks, which has been (and remains) the best performing sector year-to-date. BW Offshore (-17.0%), Hunting (-12.8%) and Tethys Oil (-2.3%) declined as oil prices slid from four-year highs. (+5.6%) was one of the handful of risers this month after issuing a short trading statement for the third quarter. It stated that total revenue over the three months grew 7% year-on-year, with the energy switching segment in its Home Services business performing better than management expected. Management also noted that it remains confident of meeting full-year expectations.  


Positive contributors to performance included:

A.G. Barr (+7.2%), (+5.6%) and Ferrexpo (+4.8%)


Negative contributors to performance included:

Siltronic (-23.1%), Kardex (-21.9%) and International Personal Finance (-20.5%)


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 31.10.2018, 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.

Tuesday, November 13, 2018, 12:23 PM