Liontrust SF European Growth Fund

Q1 2019 review

The Fund returned 8.1% in absolute terms over the quarter against the MSCI Europe ex-UK Index’s 8.0*, resulting in slight outperformance of 0.1%.

Equities bounced back strongly over the period as markets climbed the proverbial “wall of worry”, recovering from the volatile sell-off that marked the end of last year.

We entered 2019 with two key risks at play, which had rocked markets over the last quarter of 2018. The first related to interest rates and risk of a policy error; the second centred on politics, with concerns focused on a US-led trade war with China and a calamitous “no-deal” Brexit in the UK. Both risks have subsided over the quarter, and with the risk of a recession still small, markets rallied as a result.

Negotiations between Presidents Trump and Xi, aiming to find a compromise on trade, appear to be heading in the right direction. With China slowing in the last few months and economic momentum in the US also facing hurdles, both parties are incentivised to find a solution and Trump is clearly concerned a recession could damage his re-election prospects in 2020.

China’s economy is heavily dependent upon its export sector and has slowed materially since the US imposed tariffs. While the Chinese are unlikely to open their economy fully to US imports, there remain areas in which they could appease America and still continue to pursue their agenda in terms of moving up the technology curve in key sectors.

As for the UK, while the political soap opera surrounding withdrawal from the EU rolls on, the risk of a hard Brexit has receded. The situation remains fluid and difficult to predict but a soft, or semi-soft, Brexit is the likely outcome, which will be supportive for the European economy.

Meanwhile, the risk of policy error by central banks has also receded. The US Federal Reserve has scaled back its expectations for further rate rises over 2019, citing a weaker economy. Likewise in Europe and China, we have seen the risk of tightening monetary policy shift swiftly to expectations of loosening and in the absence of global recession, this has translated into stronger equity markets.

Echoing the dovish trend, European Central Bank (ECB) chair Mario Draghi again reiterated he is willing to delay rate hikes for as long as necessary, as growth projections for the region fell to 1.1% this year, down from a December forecast of 1.7%.

Draghi attempted to sound a positive note amid the current soft patch in the eurozone, claiming a temporary slowdown does not necessarily foreshadow serious recession. He added that during the four euro area business cycle expansions since 1970, there have been 50 soft patches, defined as a two-quarter growth slowdown, and only four recessions. Amid the lower growth prospects and moribund inflation, the ECB did announce further expansionary measures in March however, including another program to stimulate bank lending.

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.


As ever, the majority of our performance came from stock selection, with particularly strong returns from financial holdings including 3i, DNB, Prudential and Ringkøbing Landbobankall.

Roche was the top contributor over the quarter, reporting strong 2018 results at the end of January, with group sales up 7% last year and expected to be in the low to mid single-digit range in 2019. The company is a key beneficiary of our Enabling Innovation in healthcare theme as its successful innovation has helped to manage the ‘patent cliff when drugs lose pricing power and turn generic. The company’s innovative pipeline is also evident from the highest number of Breakthrough Therapy designations in the industry.

Elsewhere, Roche is making progress in driving digitalisation and leveraging real-world healthcare data and analytics to support product development and advance personalised healthcare.

Siemens Gamesa also had a solid quarter after a mixed 2018 and we remain positive on the prospects for this long-term position in our Increasing electricity generation from renewable sources theme.


As we have written before, recent years have seen a complete reversal of electricity generation economics and the cheapest form in the UK is now onshore wind power. We feel the market is underestimating the shift towards renewable energy and the beneficiaries of this transition are lower carbon technologies (especially wind and solar), including wind turbine manufacturers such as Siemens Gamesa.


Another stock back in positive territory after a difficult end to 2018 was Fresenius. Regulatory uncertainty hit last year, with concerns in its German Hospital and North American Dialysis businesses, and this meant the company had to invest far more than originally expected. As we said in the last review, we believe these issues can be worked through and continue to see long-term value in the company and its publically listed subsidiary Fresenius Medical Care. Positive signs have already emerged as the company announced a non-prosecution agreement with the US Department of Justice, paying a large fine but removing some of the uncertainty.

A further solid performer was Spanish business
Cellnex, the leading European telecommunication infrastructure company, after reporting positive results at the end of February. The company highlighted a fourth consecutive year of double-digit growth, and we continue to believe it is well placed to benefit from growth in communication and data usage in Europe.

Information and communications technology (ICT) is central to the global economy and can increase quality of life through driving positive changes in areas such as health, education and financial inclusion. Data usage continues to climb exponentially with more and more data-hungry devices, streaming services and complex computing requirements. 


As for the weaker performers, Norwegian metals producer Norsk Hydro struggled after warning it would miss 2019 expectations due to restricted output in its Brazil facility where the company has taken action to address environmental damage.

Norsk manufactures aluminium products used in a number of industries including transport, automotives and construction and is a beneficiary of our Improving the efficiency of energy use theme due to the lightweight properties of the alloy. Based on its supply chain and technology leadership, the company has developed a cost advantage in the production of aluminium products.

Henkel, the German adhesive and personal care company, also suffered as increasing investment impacted profitability. The Düsseldorf-based maker of Persil and Loctite warned investors that adjusted earnings per share growth would be lower than in 2018, which preliminary figures showed had missed its own muted goals. As a consequence, the company is under review.


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








Liontrust Sustainable Future
European Growth 2 Acc






MSCI Europe ex UK






IA Europe Excluding UK













* Source: Financial Express, as at 31.03.19, primary share class, 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.

Wednesday, April 24, 2019, 3:04 PM