Liontrust GF European Strategic Equity Fund

July 2020 review

The Fund’s A4 share class returned -2.3%* in euro terms in July. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned -1.4% and 0.7% respectively.


Investors were perturbed by the surge in Covid-19 infections in the US, particularly in southern and western states like Florida and California, forcing President Trump to admit the outbreak would “get worse before it gets better”. An initial estimate of the US economy in Q2 showed a 9.5% year-on-year contraction. The Federal Reserve’s rate-setting meeting saw rates held close to zero and emergency lending facilities extended. With coronavirus concerns clouding the outlook for economic recovery, the US dollar slid to a two-year low; the Dollar Index dropped by more than 4% in July.

There were also signs of a resurgence in coronavirus infections in China during July, as its economy continued to recover from the first wave; China’s GDP grew 3.2% year-on-year in Q2. 

In Europe, sentiment was boosted by a €750bn post-pandemic recovery fund that was agreed at a summit of EU leaders, the longest since 2000. This came against a backdrop of downgraded economic expectations as the European Commission cut its EU economic growth forecast to -8.3% this year, worse than its previous estimate of -7.4%. It also trimmed its predicted recovery in 2021 from 6.1% to 5.8%. The commission cited a more gradual lifting of containment measures than it had expected.

Within the MSCI Europe Index there were few discernible sector trends, with the typically defensive utilities (+3.5%) sector posting the best gain followed by the more cyclical materials sector (+2.1%). There was further notable weakness in the energy (-8.9%) sector, while communication services (-5.4%) was also a reasonably heavy faller.


The Fund’s long book positions performed better than market. However, this was offset by continued weak performance in the short book. We believe that in many cases we are observing a dislocation between company valuations and their cash flow characteristics. Investors continue to show a preference for growth stocks irrespective of their cash generation, which is particularly surprising given the highly uncertain liquidity outlook for a range of companies. The fund’s net exposure remains unchanged at c.50%.


In particular, the announcement of a couple of corporate deals saw positive reactions that hurt the portfolio’s short positions. A US specialist in residential solar energy agreed to acquire a key competitor in a deal valued at more than U$3bn; its shares rose 70%. A Norwegian owner of online classifieds marketplaces agreed a US9bn+ deal to acquire the classifieds arm of a US e-retail giant, sparking a 50% jump in its shares. A short position in another Norwegian company was also costly for the portfolio as the chip-designer released better-than-expected Q2 results and lifted Q3 guidance.


Among the long book’s better performers was Swedish digital consultancy Know IT (+18%), which was able to increase both sales (+1.5% to SKr858m) and operating profit (+11% to SKr73m) during Q2, an achievement made possible by significant staff cost support from the Swedish government. The majority of its business is in systems development for clients, which can be completed with Know IT’s staff working remotely. It commented that demand for its services from the manufacturing industry has fallen substantially but that clients such as the public sector, insurance and telecoms have been stable.


Royal Unibrew (+16%) continued to rise after the June reinstatement of its 2020 financial guidance. The company now expects operating profit of between DKr1.25bn and DKr1.38bn, down from its pre-coronavirus forecast of DKr1.47bn. The relatively modest cut to guidance is based on the assumption of a slow reopening of economies and no second wave of Covid-19.


Pandora (+11%) was another long book highlight. A Q2 trading update revealed that 86% of stores were open by the end of June, up from 20% in April. Over the quarter, sales were 40% lower than in Q2 2019, notwithstanding a 176% jump in online revenues. However, trading improved through the quarter and the company expects operating profit excluding restructuring costs to be roughly breakeven – an improvement on the loss forecast in early May. Although financial guidance for 2020 is still suspended, the company did comment that current trends, with no further lockdowns in key markets, would put it on course for positive operating profit.


The weakest stocks in the long book included Forterra (-22%), which raised its share capital by 14% via a placing, and Carnival (-20%), which is battling to cope with the cash flow implications of the short-term closure of the cruise industry.


Performance since launch* (%)

LESEF performance since launch July 2020

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








Liontrust GF European Strategic Equity
A4 Acc EUR






MSCI Europe






HFRX Equity Hedge EUR







*Source: Financial Express, as at 31.07.20, 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).


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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. 


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, August 11, 2020, 10:21 AM