Liontrust GF European Strategic Equity Fund

January 2020 review

The Fund’s A4 share class returned -1.8%* in euro terms in January, compared with the -1.3% return from the MSCI Europe Index and -0.5% return from the HFRX Equity Hedge EUR Index.

 

Despite US-Iran tensions triggered by an airstrike which killed Qasem Soleimani, global equity markets began 2020 on the front foot with US indices pushing to new all-time highs. Investor sentiment was buoyed by the mid-month signing of a ‘phase one’ trade deal between the US and China. As expected, the deal avoided any additional tariffs being levied, in return for some commitments on Chinese purchase of US goods and stricter intellectual property protection.

 

In the second half of the month markets reversed, primarily due to growing concern over an outbreak of coronavirus in the Wuhan district of China. By the end of the month, the official death toll had topped 170 and cases had been confirmed outside of China, leading the World Health Organisation to declare an international public health emergency.

 

The global growth outlook had already been clouded by downgrades to forecasts from both the World Bank and IMF so investors began to fret over the economic impact of travel restrictions and other measures to tackle the outbreak.

 

Growth concerns were very apparent through a significant defensive tilt to market returns at the start of the year. The MSCI Europe Index saw a very strong showing from the utilities sector, up 9.0%, while healthcare (+2.0%) was also solidly in positive territory for the month.

 

Commodity prices reacted swiftly to reflect concerns that Chinese demand would be affected by the coronavirus outbreak. The energy sector dropped 7.4% and the materials sector lost 5.3%. Other cyclical areas of the market such as consumer discretionary (-4.5%) and finance (-3.1%) also fell back. 

 

Although market exposure remains at around 75%, the Fund’s participation in market weakness was amplified by its long book holdings in the energy and materials sectors. Rio Tinto (-8.6%), Lundin Petroleum (-8.7%), Anglo American (-7.9%), Evraz (-12.1%) and BHP Group (-5.8%) were among the stocks affected.

 

Fears over the impact of the coronavirus outbreak on global travel and trade also accounted for several of the Fund’s weakest long positions, including shipping giant AP Moller-Maersk (-15.8%), cruise operator Carnival (-13.7%) and United Airlines (-14.0%).

 

On the positive side of the long book, Microsoft (+9.4%) was prominent after quarterly numbers came in ahead of expectations: revenue of US$36.9bn was up 14% year-on-year and ahead of analysts’ consensus forecast of US$35.7bn, driven by sales of cloud-based services including Office365 and Azure.

 

Following a rally in Novo Nordisk (+6.6%) shares, Danish paper Børsen attributed the strength to rumours that its Victoza diabetes drug could be tested for its potential as an Alzheimer’s treatment. Elsewhere in the European pharma sector Roche (+5.7%) released Q4 results that came in ahead of analyst estimates.

 

Vistry Group (+6.4%), formerly Bovis Homes, released a trading update indicating that 2019 profits would be slightly ahead of market consensus. Property completions rose 3% to 3,867 and average selling prices rose 2% to £279k over the year. The annual price rise was constrained by Brexit and general election uncertainty that knocked c.1-2% off prices in the second half of the year. Vistry was able to offset the price pressure with build cost savings that ensured operating margins expanded.

 

The best performing short book positions included a US retailer of beanbags and furniture whose shares lost around 28% after announcing that, although it expects 40% sales growth in 2020, higher marketing costs will push it to a net loss of US$15m – US$16m. Shares in a UK e-banking and payments processing specialist lost more than 40% after it guided towards a 20% increase in revenues in 2019, disappointing investors expecting higher growth. Analyst sales forecasts were cut from over £45m to around £39m. The company has chosen to turn away from retail consumers in order to pursue more profitable corporate customers. Its shares fell by more than 40%.

 

Performance since launch* (%)

Liontrust European Strategic Equity Fund January 2020 Performances

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

 

 

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust GF European Strategic Equity
A4 Acc EUR

23.2

-7.1

4.2

4.8

6.1

 

*Source: Financial Express, as at 31.01.20, total return (income reinvested and net of fees). Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.19, 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, February 11, 2020, 2:26 PM