Liontrust GF European Strategic Equity Fund

August 2020 review

The Fund’s A4 share class returned 7.7%* in euro terms in August. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 2.1% and 1.7% respectively.


July’s fall was seemingly just a blip in the extraordinary recovery seen in global equity markets since the initial coronavirus crash. From the market trough at the end of March, the MSCI Europe Index has returned 31% in euro terms.

 

A large driver of these gains has been the significant monetary and fiscal stimulus from central banks and governments around the world. In August, Federal Reserve Chair Jerome Powell gave markets an indication that the monetary support will continue for some time yet. In a speech made during the Jackson Hole central bank summit, Powell said that the Fed will be more tolerant of temporary increases in inflation above its 2% target to ensure that average inflation continues to trend at 2% over time. This new policy, which Powell described as “flexible” average inflation targeting, will likely see interest rates remain at current rock bottom levels even if the US inflation starts to accelerate.

 

Cyclical sectors led the way in Europe during August. Consumer discretionary (+8.1%), industrials (+7.0%) and materials (+4.2%) were the best performers, while utilities (-1.4%), health care (-0.7%) and consumer staples (-0.5%) were the only sectors to end the month lower.

 

August also saw value stocks outperform. The MSCI Europe Value Index rose 3.4% in euro terms compared to the MSCI Europe Growth Index’s 2.5% return. The Fund’s long book has a value bias and it significantly outperformed both the MSCI Europe and MSCI Europe Value indices in August. This more than offset the performance of the short book, which presented a moderate headwind given the market’s rise. The Fund’s return from stock selection was particularly pleasing, allowing it to outstrip the market gain despite relatively modest net exposure of around 50%.

 

UK bookmaker William Hill (+67%) was the best long book performer. Its interim results showed the heavy toll of the Covid-19 disruption on sporting events and the closure of retail outlets, with a 32% fall in net revenue during the first half of the year. The company confirmed that it would permanently close 119 stores, as it aims to merge its UK online and retail divisions. The performance of the business has improved since sport has returned and this has continued into the early part of the second half of the year, with the group generating positive free cash flow.

 

Temporary power company Aggreko (+25%) also saw a strong share price rise, despite reporting on a difficult first half of 2020. The group reported a 13% decline in revenue and adjusted pre-tax profit reflecting the impact of Covid-19 and low oil prices. It stated that conditions remain difficult in the oil and gas and events sectors, and expects full year adjusted pre-tax profit to be in the region of £80m-£100m.

 

Integrated shipping company AP Moller-Maersk (+19%) also provided updated guidance. The company had suspended its full year forecasts in March due to uncertainties, but said that it expects earnings before interest, taxes, depreciation and amortisation (EBITDA) to be between US$6bn-US$7bn for 2020. This is higher than its pre-suspension guidance of US$5.5bn. This came on the back of a strong second quarter where EBITDA improved by 25% despite the Covid-related headwinds.

 

The only long book stock to end notably lower was marketer of promotional merchandise 4imprint Group (-8.0%). The group suffered a 34% fall in revenue in the first half of the year, while underlying profit was largely wiped out, as trading was severely disrupted by the Covid-19 crisis. It also cancelled its dividend in the face of the ongoing uncertainty. However, the group emphasised that the liquidity position of the company remains robust and it is confident that the business model will resume its previous growth rate. 

 

Within the  short book a US temperature controlled logistics company dragged on performance after its shares surged in response to announcing two acquisitions which would materially increase the scale of its revenue and profit generation. A short position in an online used-car dealer also detracted as second quarter results showed the company was boosted by changing consumer behaviour towards more online purchases.

 

Performance since launch* (%)

 

LIontrust GF European Strategic Equity Fund Performance Since Launch August 2020

 

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

 

 

Jun-20

Jun-19

Jun-18

Jun-17

Jun-16

Liontrust GF European Strategic Equity
A4 Acc EUR

-15.5

2.5

3.0

5.3

2.9

MSCI Europe

-5.5

4.5

2.8

18.0

-11.0

HFRX Equity Hedge EUR

-4.5

-6.3

3.5

6.0

-9.4

 

*Source: Financial Express, as at 31.08.20, total return (income reinvested and net of fees). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 30.06.20, 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.

Thursday, September 17, 2020, 4:07 PM