Liontrust GF European Smaller Companies Fund

October 2020 review

The Fund’s A5 share class returned -0.5%* in euro terms in October. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned -4.4%.

 

Global equity markets struggled in October, weighed down by resurgent Covid-19 fears and fading hope of a US fiscal stimulus package being announced ahead of November’s election. The month began in dramatic terms as Donald Trump confirmed he had tested positive for Covid-19. As he made a swift recovery, markets hoped that negotiations with Democrats regarding a new virus-relief stimulus package might receive fresh impetus, but no agreement was reached.

 

More broadly, the path of the pandemic caused growing concern in Western markets as evidence of a second wave of infections mounted. Many countries began reintroducing lockdown measures that had previously been relaxed. Estimates of the economic impact of Covid-19 continued to feed through; the IMF now expects a 4.4% global contraction in 2020, better than its June estimate of a 5.2% fall. One of the key factors in moderating the decline has been China’s recovery; it posted 4.9% year-on-year growth in Q3, taking its year-to-date growth into positive territory following Q1’s dramatic drop.

 

All sectors of the MSCI Europe Index lost ground in euro terms during October. Energy (-6.8%) was once again among the worst performers and has now lost more than 50% this year. IT (-11%) has been one of the sectors to cope best with the pandemic, remaining in positive territory year-to-date, but it was the worst hit in October as large constituent SAP lost over 30% on downgrades to its outlook.

 

With European markets falling heavily, the Fund could not avoid the weakness but was able to show some relative strength. Among the stock-specific highlights was Bank of Ireland (+33%), which issued Q3 results that were surprisingly robust. The company described trading conditions as generally improving compared with Q2, with a 30% increase in Irish mortgage completions and a doubling in bespoke mortgage completions for its UK business.

 

Danish jewellery retailer Pandora (+11%) raised full year sales guidance within its Q3 trading update, albeit still forecasting a significant fall. It now expects a 2020 sales fall of between 14% and 17%, compared with its previous forecast of 14% to 20%. It also updated operating margin guidance to the top end of its previous range: from 16% - 19% to 17.5% - 19%. A better-than-expected sales performance in Q3, with organic sales falling 5%, was driven by 89% year-on-year growth in online sales.

 

Promotional merchandise company 4imprint (+12%) rose after a trading update showed further recovery in order levels. Weekly order intake troughed in April at less than 20% of the previous year’s level but recovered to just above 50% in August and has now risen to over 60%. Order values are also above last year’s level, meaning that average weekly revenue in October was around 65% of the 2019 comparable.

 

The extent of the Covid-19’s impact on global catering specialist Elior Group (-18%) was clear through its announcement of up to 1,900 job cuts in its French operations. The company noted that the pandemic has accelerated shifts in working patterns that were already underway. It estimates a shift in remote working to over two days per week from less than one day a week a year ago, leading to a drastic drop in volumes at its commercial and industrial sites, and necessitating “extensive” structural business changes.

 

Positive contributors to performance included:

Bank of Ireland (+33%), Aggreko (+20%) and Judges Scientific (+12%).

 

Negative contributors to performance included:

Elior Group (-18%), Keller Group (-16%) and BW Offshore (-15%).

Discrete years' performance** (%), to previous quarter-end:

 

 

Sep-20

Sep-19

Sep-18

Liontrust GF European Smaller Companies A5 Acc EUR

-2.1

-6.9

1.7

MSCI Europe Small Cap Index

0.2

-1.8

3.4

 

*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. 

Disclaimer

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, November 11, 2020, 2:02 PM