Liontrust GF European Strategic Equity Fund

October 2018 review

The Fund’s A4 share class returned -4.2%* in euro terms in October (A3 share class -4.2%), compared with the -5.3% return from the MSCI Europe Index and -4.3% return from the HFRX Equity Hedge EUR Index.


Net exposure at month end was c.32%. Market sentiment in October was firmly risk off with the MSCI Europe hitting its lowest level since the end of 2016. Our momentum indicators softened as markets tentatively met our classification of a downtrend. In this environment, the short book provided the Fund with a measure of protection against the decline in the long book which suffered as investors fled cyclical sectors in favour of defensive positions.


The sell-off in equities was not just confined to Europe, with stockmarkets across the globe recording considerable losses. It is difficult to point to just one catalyst for October’s market performance, and in reality it is likely the result of a number of factors which have been in play for the last few months.


One such component was rising bond yields. The US 10 year treasury yield showed a marked move higher at the beginning of the month as investors priced in a sharp tightening in US interest rates. This resulted in a number of market commentators calling the end of the bond bull market which has been in trend for many decades, though bond yields did fall slightly at the end of the month as investors fled to safe havens.


Perhaps the return of volatility to both equity and bond markets should be unsurprising given the gradual removal of the considerable monetary accommodation provided by central banks from around the world. The European Central Bank has begun winding down its quantitative easing programme, while the US Federal Reserve is shrinking its sizable balance sheet, as well as raising interest rates.


Another factor was concerns about global growth following a number of poor economic data releases, compounded by downgrades to economic growth forecasts by the International Monetary Fund. Citing hostile trade measures by the US against China and Europe, the IMF lowered its 2018 and 2019 global growth estimates to 3.7% from 3.9%.


European markets saw a shift to traditional defensive areas. In euro terms telecoms (+0.4%), utilities (-2.0%), consumer staples (-2.0%) and health care (-2.4%) were the most resilient to the market slide. At the bottom of the pile were more cyclical sectors such as IT (-8.7%), industrials (-8.5%) and materials (-7.0%).


Given the long book’s tilt towards cyclical areas of the market, it felt the brunt of the sell-off. Stocks such as automated storage and logistics company Kardex (-21.9%) and luxury clothing company Moncler (-17.3%) were among the biggest detractors from the Fund, the latter despite reporting some fairly positive Q3 numbers.


Another long book headwind this month was the performance of energy stocks, which has so far been the best performing sector year-to-date. Lundin Petroleum (-18.2%), BW Offshore (-17.0%) and ENCE Energia Y Celulosa (-15.4%) declined as oil prices slid from recent four-year highs.


Premium polymer supplier Covestro (-18.2%) also issued third quarter numbers. It recorded a year-on-year increase of 4.8% in sales, of which 3.1% was a result of increasing selling prices. Earnings before interest, tax, depreciations and amortisation (EBITDA) was at €859m, a touch lower than the same period last year as sales growth was offset by a decline in margins.


The short book was responsible for the biggest contributors to Fund performance, with companies in the bottom quintile of our cash flow screens being punished the most in the market rout. Among the largest contributors was a Finnish metal processing equipment maker after it warned about additional costs for its Saudi Arabian alternating current electric furnaces. The company stated that the costs would have a material impact on its adjusted operating profit in 2018.


Performance since launch* (%)

Liontrust European Strategic Equity Performance October 2018

Discrete monthly returns (A4 share class)*

1yr since 25/04/14
Fund -2.8% 20.4%
MSCI Europe -5.8% 21.9%
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%
MSCI Europe 1.6% -3.9% -2.0% 4.6% 0.1% -0.7% 3.1% -2.3% 0.5% -5.3%
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 31.10.2018, total return (income reinvested and net of fees). Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 30.09.2018, 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, November 6, 2018, 4:47 PM