Liontrust GF European Strategic Equity Fund

June 2020 review

The Fund’s A4 share class returned -1.2%* in euro terms in June. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 4.1% and 3.2% respectively.

 

The rebound continued for global equity markets as green shoots started appearing in economic data. The most significant of these positive economic data releases was a hugely surprising US jobs report, which confounded expectations of a decline in non-farm payrolls and a rise in unemployment. In May, the US Bureau of Labor Statistics reported a 2.5m increase in non-farm payrolls, while unemployment fell to 13.3% from 14.7% in April. European data also showed signs of encouragement, with better than expected PMI survey scores from a number of countries across the continent.

 

However, it was not all plain sailing for equities during June. One of the key risks to the economic recovery is a second wave of coronavirus infections and the rise in new cases this month, particularly in the US and China, gave investors cause for concern. The states of Texas and Florida reversed their reopening plans due to mounting cases, while China reinstated lockdown in a province just outside of Beijing.  In a speech before the Committee on Financial Services, Federal Reserve Chair Jerome Powell noted that the path ahead for the US economy is extraordinarily uncertain and it remains heavily dependent on the extent the spread of the virus is kept in check. 

 

Members of the European Central Bank’s governing council were equally cautious on recovery prospects. President Christine Lagarde said the virus has caused an unprecedented contraction in eurozone economic activity, as the Bank unveiled new economic projections of an 8.7% real GDP contraction in 2020. The ECB also stated that it would add a further 600bn to its pandemic emergency purchase programme, taking total bond purchases to 1,350bn. 

 

The MSCI Europe’s returns were driven largely by cyclical sectors such as financials (+6.6%) and IT (+5.7%), while health care (-0.7%) was the only sector to end lower, having been one of the best performing sectors since the pandemic started.

 

The net exposure of the Fund at the end of June was 40%. The short book continued to hinder overall performance, while the long book also lagged the return of the MSCI Europe Index. This was due to continued investor preference for growth stocks in this environment irrespective of their cash flow characteristics. However, this has meant the valuations of companies that score best on our cash flow measures have reached levels not seen since the peak of the tech bubble. This preceded a very strong period of performance from the process – as it also did in the aftermath of the GFC. The Fund is poised to benefit when these valuations normalize, something we wrote about in a recent blog.

 

AP Moller-Maersk (+18.0%) was one of the long book’s best performers. The container shipping company said that trading in the second quarter had been better than expected, with volumes now anticipated to show a decline of 15-18% compared to initial guidance of 20-25%. Despite this fall in volumes, the company is on course to report Q2 earnings slightly above the previous quarter and the prior year comparable. However, earnings guidance for 2020 as a whole remains suspended due to the ongoing uncertainty.

 

Italian pharma company Recordati (+8.6%) saw its shares rise after announcing positive phase III results for its Isturisa treatment for Cushings disease. These results were well received by the market given the commercial potential for the drug.

 

Shares in BNP Paribas (+9.7%) and Bank of Ireland (+12.9%) both rebounded from May weakness alongside other financial stocks. The latter also benefited from the Irish general election result, which was seen to provide stability and continuity.

 

William Hill (-15.6%) commented on an improvement in trading as some sporting events returned, with online revenue falling 3% year-on-year in the five weeks to 9 June, compared to a 21% decline in the five weeks immediately before that period. Retail sales however were entirely eroded due to the lockdown, but William Hill stated that it plans to reopen its retail estate gradually, focussing on areas with the greatest footfall. The company also announced a share placing of c.20% of its existing share capital to shore up its balance sheet.

 

The short book once again held back overall Fund performance. Among the detractors was a Norwegian clean energy company which signed a deal to supply hydrogen systems to a global car maker. A Swiss e-commerce pharmaceutical meanwhile announced the acquisition of a mail-order and diabetes business, which was well received by the market.             

 

Performance since launch* (%)

Liontrust European Strategic Equity Fund June 2020 Performance Since Launch

 

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 30.06.20, 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.

Monday, July 13, 2020, 9:49 AM