Liontrust GF European Strategic Equity Fund

May 2019 review

The Fund’s A4 share class returned -3.1%* in euro terms in May (A3 share class -3.0%), compared with the -4.9% return from the MSCI Europe Index and -1.9% return from the HFRX Equity Hedge EUR Index.


The Fund’s net exposure continued to rise in May, reaching 76%. This reflects the uptrend signalled in our momentum indicators for market direction. During the month, the Fund’s short book outperformed, with the average short position dropping by more than the market. This helped offset the losses from the long book, which suffered as investors shunned risk assets.


European equities registered their first monthly decline of 2019, following a deterioration in relations between the US and China. Prior to May, it had seemed the two countries were edging towards a trade agreement after months of negotiation and a pause to tariff increases. However, talks broke down and President Trump moved to raise tariffs on US$200bn worth of Chinese goods to 25%. This escalated further as Trump signed an executive order blacklisting Chinese telecoms company Huawei. China retaliated by hiking tariffs on US$60bn worth of US goods.


The resurgence of trade hostilities weighed on market sentiment, sparking concerns about global growth once again. The previous bout of tariff increases by the US and China resulted in a cut to growth forecasts by institutions such as the World Bank and investors fretted that the latest protectionist measures could further derail global economic prospects.


The fear in the market resulted in greater demand for defensive assets. German 10-year bund yields turned negative again and hit their lowest levels on record, safe haven currencies such as the Japanese yen and Swiss franc both rose. A similar split was seen on equity markets where defensive sectors were favoured. In the MSCI Europe Index, all sectors ended lower in euro terms but utilities (-0.2%), health care (-1.2%) and consumer staples (-1.3%) were the most resilient. At the bottom of the sector list were materials (-7.8%), financials (-7.4%) and consumer discretionary (-6.8%).


The long book’s growth bias meant that it was exposed to market weakness. Among the fallers was London-listed housebuilder Bovis Homes Group (-14.2%) which confirmed it had approached its rival Galliford Try with a proposal regarding the potential combination of Bovis Homes and Galliford Try’s Linden Homes and Partnerships & Regeneration businesses for a consideration of £950m. The proposed deal would have been financed with the issuance of new Bovis Homes shares. However, following Galliford Try’s rejection of the bid, the two companies said they were no longer in discussions.


The stock, as well as the rest of the UK housebuilding sector, also came under pressure as the Brexit situation continued to heighten uncertainty. Theresa May’s resignation as prime minister and the a strong showing from the Brexit party in the European elections meant chances of a ‘No Deal’ Brexit increased which weighed on domestic sensitive sectors such as housebuilders. Persimmon (-14.4%) was another long book holding to fall.


Lundin Petroleum’s (-16.4%) share price fell despite delivering first quarter results which were marginally ahead of consensus. The Norwegian oil exploration and production company’s EBITDA (earnings before interest, taxes, depreciation and amortisation) came in at US$406m, compared to the market’s estimate of US$399m. The stock’s decline could perhaps be better attributed to the 8.5% fall in oil prices during May, a result of the renewed trade tensions.                           


Results from BW Offshore (+15.1%), the floating production storage and offloading (FBSO) vessels specialist, were better received by the market. EBITDA for the first quarter of 2019 beat consensus by almost 20%. The company said earnings were boosted by oil production in its Tortue field, which yielded net 1.2m barrels. In addition to the results, BW Offshore stated that its plans to spin out its energy business and seek a separate listing for BW Energy later in the year.


The short book’s performance was the highlight in May, with a number of holdings registering double digit declines. A US networking technology company was one of the contributors as its earnings forecast for its next financial quarter came in materially below what the market expected. The company cited the weakening economic environment in Europe, Middle East and Africa, a longer sales cycle for its wireless business and a lower backlog.


Another US tech company also disappointed the market with its guidance. The group, which specialises in the education sector, delivered first quarter results in line with market expectations but guidance for 2019 as a whole was trimmed. Management warned about softer average enrolment in the group’s domestic graduate programmes.


A French motor homes and caravan company cited economic and political uncertainties for its underperformance in the first half of its financial year. Leisure equipment sales were negatively affected by the gilet jaunes protests and its leisure vehicles sales saw a marginal decline. 


Performance since launch* (%)

Liontrust European Strategic Equity Fund May 2019 Performance


Discrete monthly returns (A4 share class)*

1yr since 25/04/14
Fund -3.2% 22.7%
MSCI Europe -0.7% 27.1%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 7.6% 1.3% 3.0% -1.6% -3.1%
MSCI Europe 6.2% 4.2% 2.0% 3.8% -4.9%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fund 0.7% 1.1% -1.7% 1.5% 1.2% -2.6% 2.0% -2.0% 1.8% -4.2% -6.3% 1.5%
MSCI Europe 1.6% -3.9% -2.0% 4.6% 0.1% -0.7% 3.1% -2.3% 0.5% -5.3% -0.9% -5.5%
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%
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%
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%


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







Liontrust GF European Strategic Equity A4 Acc EUR






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


*Source: Financial Express, as at 31.05.2019, total return (income reinvested and net of fees). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.03.2019, 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.

Monday, June 10, 2019, 3:55 PM