Liontrust GF European Strategic Equity Fund

January 2018 review

The Fund’s A3 share class returned 0.7%* in euro terms in January (A4 share class 0.7%), compared with the 1.6% return from the MSCI Europe Index and the 3.1% return of the HFRX Equity Hedge EUR Index.

 

Net exposure at month end was c.60%. The Fund’s long book produced a positive return in January which was just shy of that posted by the market. As expected in a rising market, the short book detracted, a trend which was slightly exacerbated by a holding receiving takeover offers.

 

With the holiday firmly period behind us, there was plenty of monetary and economic data news flow during the month. This started early on with the minutes from the December Federal Open Market Committee meeting confirming that the Federal Reserve remains on a gradual hike path so long as inflation stays subdued, even if the boost to growth from fiscal stimulus is taken into account. This prompted renewed confidence from some market commentators that three rate hikes in 2018 was a realistic potential outcome. As the month progressed, economic data points including in-line German and eurozone inflation data were reported, while of note, the ZEW, GfK consumer confidence and IFO surveys in Germany were all better than expected and UK GDP also surprised on the upside. Towards the end of the month, the European Central Bank (ECB) left all key interest rates unchanged. In his press conference, President Mario Draghi said the ECB remained ready to increase the asset purchase programme but noted that strong cyclical momentum was helping the eurozone economy grow at a robust pace. Speculation remains that forward guidance will be adjusted, perhaps at the March meeting.

 

There was a sharp focus on the sell-off in sovereign bonds. The US 10-year bond yield hit its highest level in almost four years, while the German 10-year bund yield reached a one year high. Bond prices fell as investors considered an improving outlook for the world economy and the likely result of tightening monetary conditions.

 

This fall in bond prices reverberated into stock markets, with defensive areas among the worst performing in the MSCI Europe Index: utilities (-2.4%), consumer staples (-2.0%) and real estate (-1.7%). Financials (+4.6%), consumer discretionary (+3.1%) and materials (+2.7%) were the biggest gainers.

 

There was also a notable slide in the dollar in January (-3.0% in trade weighted terms). US Treasury Secretary Steven Mnuchin commented at the World Economic Forum in Davos that a weaker dollar would be good for the US economy. There was further pressure on the greenback as the US government shutdown for three days as politicians failed to agree on a temporary spending bill.

 

The dollar’s weakness had the inverse effect on commodity prices, which in turn supported the Fund’s materials holdings. Anglo American (+12.0%) was one of the best performers in the long book. The multi-commodity miner reported a 5% increase in total production during the fourth quarter of 2017 partly due to the ramp up of the Gahcho Kue diamond mine in Canada and the Grosvenor coal mine in Australia.

 

Steel maker Evraz (+11.0%) also reported positive production for the fourth quarter. It noted crude steel output rose 3.7% in 2017 which the company stated was due to improved demand in North America and higher production after the completion of repair work in its West-Siberian metallurgical plant.

 

There were a couple of notable detractors from the long book. Nordic hotels operator Scandic Hotels Group’s (-25.6%) shares fell after it stated adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) for the fourth quarter of 2017 is expected to be c.16% lower than the same period in 2016. This was a result of weaker earnings from operations in Sweden and one-off personnel costs.

 

Persimmon (-7.2%), the London-listed housebuilder, saw its shares fall amid some profit taking. The company released a statement indicating that it expects to deliver pre-tax profit for 2017 modestly ahead of the market consensus, citing healthy customer demand for new homes and a 3% year-on-year rise in average selling price.

 

From the short book, one of the main detractors was a Belgian biopharmaceutical company which received a takeover offer from a Danish peer. The bid was initially rejected and a counter bid by a French rival was agreed at the end of the month, but our short position was closed following the first bid announcement. Another detractor was a UK-based veterinary company, which reported growth in like-for-like sales for the first half of its financial year and remained optimistic about its surgery acquisition pipeline.

 

A positive contributor to the short book was a US convenience store supplier, which lowered its expectations for 2017. This was partially a result of operational cost reductions not being realised as quickly as the company had expected.

 

Performance since launch* (%)

Liontrust GF European Strategic Equity Fund January 2018 review - Performance since launch


Discrete monthly returns*

1yr since 25/04/14
Fund† 3.4% 24.1%
MSCI Europe 12.4% 29.7%

 

2018
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund† 0.7%
MSCI Europe 1.6%
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%
†A4 share class

 

 

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

 

Dec-17

Dec-16

Dec-15

Liontrust GF European Strategic Equity A4 Acc EUR

4.2

4.8

6.1

 

Discrete data is not available for five full 12 month periods due to the launch date of the portfolio.

 

*Source: Financial Express, as at 31.01.2018, total return (income reinvested and net of fees).

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. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.

Disclaimer

This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.

Friday, February 9, 2018, 3:00 PM