Liontrust GF Sustainable Future Pan-European Growth Fund

Q3 2018 review

The Luxcellence - Liontrust SF Pan-European Equity Fund, which had launched on 14 March 2001, merged into the Liontrust GF Sustainable Future Pan-European Growth Fund on 19 October 2018.

The Fund returned -1.8% in absolute terms over the quarter against the MSCI Europe Index’s 1.3%*†, resulting in underperformance of 3.1%.

This came against ongoing geopolitical uncertainty, with US and China trade tensions remaining high and the deal to overhaul NAFTA (the North American Free Trade Agreement) doing little to ease things. Europe’s relationship with the US is on stronger footing however, after EU Commission President Juncker’s July trip to America resulted in a ‘zero tariff, zero non-tariff barriers and zero subsidies’ deal on non-auto industrial goods and agreements to keep working on services, chemicals and soybeans.

Developments in Italy added to volatility, with the government seeking a 2019 budget including a deficit of 2.4%. Although significant, we expect difficult negotiation rather than anything more serious between the EU and Italy.

Meanwhile, Brexit debate continues to dominate the UK agenda as Theresa May continues to push her Chequers plans against opposition both within her own party and among the EU leadership.

Our process remains focused on high-quality companies with long-term sustainability drivers that should grow regardless of the economic or political backdrop but as ever, we are monitoring the situation on trade, as well as ongoing political volatility, for potential impacts on growth trends across Europe.

Against this backdrop, our exposure to financials, and our picks in the sector, were the largest positive factor, with DNB, 3i and Handelsbanken performing well.

DNB is a Norwegian retail bank identified under our Increasing financial resilience theme and possesses the quality indicators we look for in banks including prudent lending practices, strong capitalisation and growing returns on equity. It is also highly correlated to the price of oil due to the makeup of the Norwegian economy, offering diversification for the fund.

Other positive contributors included a new position in Austrian-listed power company Verbund. Our thesis is based on a continued increase in the EU Emission Trading System carbon price: this had traded below 5 per tonne of CO2 for years but recently breached the 20 level for the first time since 2008 and we believe it can keep rising to 25-30 (and beyond), which in turn inflates the power price in Europe.

Verbund, as a hydro player with relatively low costs, is highly operationally leveraged to an increase in power prices and the resulting cashflows from selling its own product, which emits very little carbon, at a higher price. The purpose of the carbon price is to make the most carbon-intensive forms of electricity uneconomic and ultimately reduce Green House Gas emissions from electricity generation in Europe.

With its low-carbon electricity generation, Verbund is a beneficiary of decarbonising the grid. Despite strong performance from the stock, we believe the predicted appreciation in carbon prices is not currently priced in.

A number of stocks pulled down returns over the quarter, including Valeo, Infineon, Hella and ASML in our Increasing auto safety theme and Wessanen.

We remain confident in the auto safety trend but Valeo in particular is struggling to convert this into profitable growth and, having halved our position in August, it remains under review.

With ASML, Infineon, and Hella however, all three are market leaders in their respective fields and we remain confident in their prospects over the longer term.

ASML is a semiconductor equipment manufacturer and sole supplier of EUV (extreme ultra violet) lithography equipment, while Infineon is another semiconductor business, playing a key role in providing the chips for auto safety systems. Hella meanwhile produces lighting technology, electronics components and computer systems for the automotive industry and is the leader in the manufacture of LED lighting for cars with 60% market share.

In recent months, these stocks have suffered from slowing end markets, with several factors weighing on short-term sentiment. This ranges from trade concerns to the Worldwide Harmonised Light Vehicle Test Procedure, new regulation on emissions that has caused delays for car manufacturers.

Wessanen surprised the market with a July warning that lower-than-expected Q2 sales indicated fundamental issues that would impact longer-term performance. There are clear issues around the company’s ability to capture growth in the healthier eating market and as a result, Wessanen is also under review.

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








Luxcellence Liontrust Sustainable Future
Pan-European Equity Fund A Class






MSCI Europe







*Source: Financial Express, as at 30.09.18, primary share class, in euro terms, total return, net of fees and income reinvested.

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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


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.

Friday, October 26, 2018, 9:29 AM