Liontrust SF European Growth Fund

Q2 2019 review

The Fund returned 9.8% over the quarter against the MSCI Europe ex-UK Index’s 8.4% and the IA European ex-UK sector average of 8.5%*.

Equities enjoyed a strong period overall, despite a dip in May, and European markets have registered their strongest first half of a year since 1998. As we have grown used to over recent years, this has been against macro uncertainty in the background, with tensions rising in the Middle East, the US and China continuing to argue on trade and Brexit still unresolved as the UK awaits its new Prime Minister.

With Boris Johnson the bookies’ favourite, odds of a hard Brexit have increased: it remains hard to see how anyone can get a deal through at this stage or re-negotiate with the EU.

Despite no actual rate activity in June, it was an interesting month on the policy front, with the Federal Reserve, European Central Bank and Bank of England all making announcements. President Trump’s footprint was all over the situation, accusing the European Central Bank (ECB) of trying to prop up the European economy and gain an advantage in the US. Trump directed his criticism at ECB president Mario Draghi, who said in a speech that additional stimulus will be required to help Europe withstand economic challenges. Draghi’s statement not only talked about plural rate cuts but said the Bank’s focus is now on how to implement stimulus rather than whether it should.

As ever, the majority of our performance against this backdrop came from stock selection, with a broad selection of holdings contributing to performance.

Spanish telecom firm Cellnex was the best performer over the period, posting solid first-quarter results in May, having completed a capital increase of €1.2 billion to acquire further sites in France, Italy and Switzerland. We believe infrastructure is the backbone of the digital economy and tower companies like Cellnex are poised to benefit from continued growth in communications: 5G, small cells and IoT will all increase demand for telecom infrastructure and the need for denser networks. 

Cellnex is an important consolidator in the European market, as the telecommunication companies divest their tower assets to focus on their core business. Cellnex then becomes an independent provider, with the telecoms companies all sharing its wares. This model matches that in the US and is more efficient for the overall infrastructure network by avoiding duplicated towers.

Elsewhere, Banca Generali posted another solid quarter and we continue to see this as a unique asset gathering business in Italy. The company also reinforced its sustainable credentials over the period, winning the Leone D’Oro 2019 Award for Best Italian Bank for Environmental Social and Governance (ESG) Strategy. Key to this is integrating a series of filters on the financial advisory platform, allowing users to construct portfolios based on 17 of the UN’s Sustainable Development Goals.

Other strong contributors included German software business SAP, which has instigated a major restructuring plan after profits stalled in 2018 and reported strong Q1 numbers in April, including a record period for cloud revenues.

Long-term holding Kingspan was another solid holding, reporting a positive first quarter in May. Sales rose by 18% year-on-year to 1.06bn, which the group attributed to strong volumes across its key markets. This comes on the heels of a good 2018, during which the company delivered revenues of over 4bn for the first time.

Among the few underperforming names, trade uncertainty continues to impact some of our names in the autos space, including Infineon and Umicore. The latter, a Belgium-based cobalt refiner, announced profits in 2019 would be around 10% lower than analysts anticipated. The price of cobalt, a key metal for lithium-ion batteries, has fallen more than 60% over the past year, due mostly to an increase in supply from mines in the Democratic Republic of Congo.

Aquafil was the weakest performer over the quarter, releasing Q1 results that showed reduced margins compared to the same period in 2018 – although the manufacturer of synthetic fibres and polymers said this was expected as a result of its European facilities’ ongoing support for the US operations. Over the period, Aquafil further strengthened its position in the US with the purchase of O’Mara for $40.5m as it looks to accelerate the globalisation of the textiles business.


In terms of activity over Q2, additions to the portfolio included Danish utility services company Ørsted, which focuses on off- and onshore wind development. Speaking at the recent Bloomberg Sustainable Business Summit in London, Ørsted UK head Matthew Wright said switching to 100% renewables is the only feasible business model for the future and companies failing to make the switch will not survive.

Ørsted itself has changed to become a green energy company, a strategy that started in 2017 with the divestment of its oil and gas business. This saw the company change its previous name of DONG (Danish Oil and Natural Gas) and take the name of Danish scientist Hans Christian Ørsted, who discovered electromagnetism. At the end of last month, Ørsted announced the former coal-fired Studstrup Power Station near Aarhus in Denmark would run on straw and wood pellets at the same time.

Meanwhile, we exited our position in Italian cable maker Prysmian. We had previously liked the company for its leadership position in connectivity, which includes highly technical deep sea projects, but problems at one of these projects in the UK, the Western Link project drove a profit warning in June 2018.

More recently, the company announced the protection system on the cable had tripped during the commissioning phase and also cancelled the shareholder meeting to allow the board to re-review the Annual report and Accounts set to be agreed.

Our process looks for companies that can turn thematic drivers into high-quality earnings and while we have every faith in the Increasing electricity generation from renewable sources theme, we no longer have visibility on this company’s earnings and have therefore exited the position.

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








Liontrust Sustainable Future
European Growth 2 Acc






MSCI Europe ex-UK Index






IA Europe Excluding UK sector













* Source: Financial Express, as at 30.06.19, 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.

Monday, July 29, 2019, 12:41 PM