Liontrust GF European Strategic Equity Fund

August 2019 review

The Fund’s A4 share class returned -0.8%* in euro terms in August (A3 share class -0.7%), compared with the -1.4% return from the MSCI Europe Index and -0.4% return from the HFRX Equity Hedge EUR Index.

 

Net exposure at the end of August was c.78%. A strong performance by the short book offered some protection to the Fund amid the sell-off in European equities. A number of short holdings registered double digit declines, outstripping the fall in the wider market. The long book performed largely in line with the MSCI Europe Index.

 

European stocks joined the global equity slump as US-China trade tensions weighed on sentiment once again. Trump announced at the beginning of the month that the US would impose a 10% tariff on US$300bn worth of Chinese imports on 1 September. The following day the Chinese renminbi fell to its lowest level against the US dollar since February 2008, resulting in accusations of currency manipulation from the US and fears that a currency war could add to trade woes. Trump added fuel to this fire by continuing his attacks on the Federal Reserve for keeping the dollar too high.

 

As the month wore on, Trump stated that tariffs would be delayed on around US$155bn worth of consumer goods until December with the aim of reducing the impact on consumers ahead of Christmas. However, he later raised the tariff rate to 15% and warned US companies to exit the Chinese market. China stated that it will retaliate with “necessary countermeasures” and commented that the US had seriously violated the agreement struck by the two countries in the Osaka G20 meeting. 

 

As has been the case in previous episodes of US and China trade tensions, defensive assets benefitted. Gold is an obvious illustration of this, with the metal hitting its highest level for over six years. It was also apparent in equity market sector trends; in the MSCI Europe Index, consumer staples (+3.4%), utilities (+3.3%) and health care (+3.0%) were the best performers in euro terms. Energy (-7.3%), financials (-5.4%) and IT (-4.2%) experienced the worst of the sell-off.

 

Within the long book, it was mining stocks that weighed on performance. Evraz (-18.6%), BHP Group (-9.9%) and Anglo American (-9.6%) all suffered as iron ore prices declined. The metal and other commodity prices came under pressure from the renewed US-China trade tensions and signs of a slowdown in the Chinese economy. Meanwhile, clothing companies Moncler (-8.3%), Adidas (-6.9%) and Kering (-6.2%) all suffered amid the rotation out of cyclical areas of the market.

 

Adidas also reported second quarter earnings. Operating profit rose 9% to €643 million, which was a touch below the market’s estimate of €648m. However, the company said that sales growth in its target area of Greater China continued at a double-digit rate and added that it maintains guidance for the full-year.

 

VMware (-23.8%) was also a poor long book performer after it announced a deal to purchase Pivotal Software and Carbon Black for a combined sum of almost US$5bn. Pivotal Software is a cloud software service, with which VMware has a long history of collaboration while Carbon Black is a cybersecurity firm. The share price weakness reflected the market’s perceived risk of integrating the two new businesses.

 

There were a number of notable gainers during August. Danish drinks group Royal Unibrew (+16.9%) stated that EBIT (earnings before interest and taxes) for 2019 is now expected to be at the upper end of its Dkr1.44bn-Dkr1.47bn guidance after posting strong interims. The company recorded an 11% increase in EBIT in the first six months of 2019, with contributions from all its segments. Royal Unibrew has been increasing its focus on addressing new customer trends within areas such as “good for you”; low/no sugar beverages were among the top performing segments in the first half.

 

Novo Nordisk (+9.8%) announced that sales growth at constant currencies is expected to be between 4% and 6% in 2019, higher than its previous estimate of between 2% and 5%, while operating profit growth guidance was raised and narrowed to 4%-6% from 2%-6%. The diabetes focused healthcare company said the upgraded guidance was a result of a strong interim period, in which net sales increased 5% and operating profit rose 6%.

 

The biggest contributor to the short book’s performance was a US energy provider which dropped after its 2020 guidance disappointed the market and led to cuts in analyst estimates. It was a similar story for a US performance materials manufacturer which suffered analyst downgrades due to the potential effects from the US-China trade conflict. The main detractor from the short book performance was an alcoholic beverage company which accepted a takeover bid representing a 90% premium to its share price.

 

Performance since launch* (%)

LESEF Performance August 2019


Discrete monthly returns (A4 share class)*

1yr since 25/04/14
Fund 0.1% 23.6%
MSCI Europe 2.5% 31.2%
2019
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 7.6% 1.3% 3.0% -1.6% -3.1% 3.1% -1.6% -0.8%
MSCI Europe 6.2% 4.2% 2.0% 3.8% -4.9% 4.4% 0.3% -1.4%
2018
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 0.7% 1.1% -1.7% 1.5% 1.2% -2.6% 2.0% -2.0% 1.8% -4.2% -6.3% 1.5%
MSCI Europe 1.6% -3.9% -2.0% 4.6% 0.1% -0.7% 3.1% -2.3% 0.5% -5.3% -0.9% -5.5%
2017
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 1.5% 2.0% 0.5% 1.4% -2.1% -2.0% -0.2% 1.6% 0.8% 1.1% -3.3% 3.0%
MSCI Europe -0.4% 2.9% 3.3% 1.7% 1.5% -2.5% -0.4% -0.8% 3.9% 2.0% -2.1% 0.8%
2016
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund -0.6% -0.2% -0.8% -0.7% 0.9% 2.3% 1.1% -1.5% 2.7% 2.7% -2.2% 1.2%
MSCI Europe -6.2% -2.2% 1.3% 1.9% 2.3% -4.3% 3.5% 0.7% 0.0% -0.8% 1.1% 5.8%
2015
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 1.7% 2.4% 1.5% -1.6% 1.3% -1.3% 3.9% -1.6% 2.2% -3.4% 0.8% 0.2%
MSCI Europe 7.2% 6.9% 1.7% 0.0% 1.4% -4.6% 4.0% -8.4% -4.3% 8.3% 2.7% -5.3%
2014 (subsequent to April's change to fund name and objective)
May Jun Jul Aug Sep Oct Nov Dec
Fund 0.2% 0.0% 1.2% -0.2% -0.5% 1.9% 2.4% 0.9%
MSCI Europe 2.5% -0.4% -1.5% 2.0% 0.4% -1.8% 3.2% -1.4%


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

 

 

Jun-19

Jun-18

Jun-17

Jun-16

Jun-15

Liontrust GF European Strategic
Equity A4 Acc EUR

2.5

3.0

5.3

2.9

10.1

 

*Source: Financial Express, as at 31.08.2019, total return (income reinvested and net of fees). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 03.07.2019, total return (income reinvested and net of fees).


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.

Tuesday, September 17, 2019, 3:08 PM