Liontrust GF European Smaller Companies Fund

September 2019 review

The Fund’s A5 share class returned 3.2%* in euro terms in September. This compares with the 3.5% return from the MSCI Europe Small Cap Index.

 

Global equities staged a recovery from August’s slump as central bank policy again took centre stage. The European Central Bank cut benchmark interest rates further into negative territory and altered its forward guidance to state that rates would remain at these levels or lower until inflation picked up to close to the 2% target. Previously the bank had only committed to avoiding rate rises until mid-2020. It also revived quantitative easing, announcing an open-ended €20bn-a-month programme from November.

 

The US Federal Reserve cut rates by 25 basis points to a range of 1.75%-2.0%, in a move interpreted as a hawkish cut. The Fed’s indication that further cuts should not be expected drew the ire of President Trump, who launched another twitter attack on Jay Powell. Trump became more incensed as a formal impeachment enquiry was opened later in the month after accusations that he had asked Ukraine to investigate Joe Biden.

 

Developments in the US-China trade spat continued to be volatile, with both parties announcing some temporary postponement of tariffs before the month finished with speculation the US was exploring ways of limiting investment in China’s financial markets. Political volatility was also an ongoing feature in the UK as Parliament passed an emergency law to stop no-deal Brexit and then blocked Boris Johnson’s attempts to hold a snap election. He proceeded to suspend Parliament, only for the Supreme Court to rule that the move was unlawful.

 

Oil prices surged following attacks on Saudi Arabian oil facilities that were blamed on Iran. Brent crude rose 15% to US$69/barrel on the day of the attack, before settling down to US$61 by month end. The European energy sector rose 6.8% in September, beaten only by financials (+8.5%). More typically defensive sectors such as consumer staples (-0.3%) and health care (+1.6%) were the laggards.

 

There was also a significant shift in the style bias to market returns in September, as equities with ‘value’ characteristics markedly outperformed those with ‘growth’ credentials. The MSCI Europe Value index returned 6.2%, compared to the 1.7% from the Growth index. Momentum-based strategies proved very volatile as market leadership shifted between these groups of stocks.

 

We have noted surges in both corporate optimism and investor anxiety in the US. Investor anxiety has climbed particularly in sectors vulnerable to a prolonged trade war with China. While these conditions are not replicated in Europe, style and market direction in Europe are highly correlated with developments in the US, so we will monitor developments closely. High investor anxiety often precedes strong performance from value strategies, so while this measure remains elevated we could observe further sharp bouts of style rotation.

 

We have noted surges in both corporate optimism and investor anxiety in the US. Investor anxiety has climbed particularly in sectors vulnerable to a prolonged trade war with China. While these conditions are not replicated in Europe, style and market direction in Europe are highly correlated with developments in the US, so we will monitor developments closely. High investor anxiety often precedes strong performance from value strategies, so while this measure remains elevated we could observe further sharp bouts of style rotation.

 

Some of the Fund’s largest risers in the month could be characterised as cyclical value. Spanish car components supplier CIE Automotive (+9.1%); UK housebuilder Bovis Homes (+12.4%); Swedish construction and engineering company Peab (+9.5%); and Swiss air-con actuator manufacturer Belimo (+9.8%). Bovis Homes was also boosted by the news – released on the same day as interim results – that the company had re-initiated discussions around a deal to acquire Galliford Try’s housing division

 

Stock-specific newsflow was also largely positive for the Fund this month. Scientific instruments specialist Judges Scientific (+17.8%) released a set of interim results showing strong growth in revenues, up 9% to £40.2m, and profit before tax, up 27% to £8.4m. Shares in the company moved higher on its guidance that full year earnings are now on course to be ahead of the market’s expectations.

 

BW Offshore (+7.3%) announced that proved and probable reserves at its Dussafu Marine site offshore Gabon had tripled to 66.3 million barrels. This field has also seen better-than-expected production so far this year, which contributed to the company upgrading its 2019 full year production forecast to 4.1-4.4 million barrels.

 

The outlier was Advanced Medical Solutions (-19.9%) which dropped heavily after reporting a 6% contraction in adjusted interim profit before tax to £12.8m. As flagged in an earlier trading update, its US Liquiband product line is dragging on sales growth. The unit saw a 27% fall in sales due to destocking, tougher competition and delayed product launches. This restricted overall group sales growth to just 1%.

 

Positive contributors to performance included:

Judges Scientific (+17.8%), 4imprint Group (+9.9%) and Belimo Holding (+10.1%)

 

Negative contributors to performance included:

Advanced Medical Solutions (-19.6%), Simcorp (-4.9%) and Royal Unibrew (-4.0%)

 

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

 

 

Sep-19

Sep-18

Liontrust GF European Smaller Companies A5 Acc EUR

-6.9

1.7

MSCI Europe Small Cap Index

-1.8

3.4

 

*Source: Financial Express, as at 30.09.2019, total return (net of fees and income reinvested). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 30.09.2019, 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.

 

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, October 16, 2019, 9:44 AM