Liontrust SF European Growth Fund

Q2 2020 review

The Fund returned 20.6% over the quarter, outperforming the MSCI Europe ex-UK Index return of 18.1% but slightly lagging the IA European ex-UK sector average of 20.8%*.

After the huge market declines in March, the second quarter saw equities retrace a large portion of these losses on the belief that policymakers’ ‘whatever it takes’ attitude will be enough to prevent a serious recession. The situation is unique and dynamic with no contemporary examples to use a guide. As usual, therefore, it is impossible to predict the nature of economic recovery, whether V, U or even W shaped – although this has not stopped people from trying.

Ultimately, we are long-term optimists and believe we will reach a new normal at some point, overcoming this challenge as we have others in the past. But instead of trying to work out how and when the market will recover, our process focuses on the structural shifts to a more sustainable economy and companies making the world cleaner, healthier and safer.

After a strong first five months of the year, the fund did give up some relative performance in June, as areas of the economy most vulnerable to prolonged lockdown, primarily consumer-facing cyclical sectors where we have less exposure, rallied as countries began to open up. Our companies, on the whole, have weathered the economic fallout from Covid-19 well and with robust demand, quality management teams, and strong balance sheets, they do not have as far to recover.

Overall, we are pleased with the fund’s relative performance and satisfied with the actions our companies are taking to navigate difficult times. Periods of volatility can help us increase our positions in high-quality companies with strong prospects and we therefore remain confident the portfolio is positioned well for the long term.

As we said last quarter, crises often super-charge societal changes that have been in action for many years and this is happening across many of our themes. Our Connecting People theme continues to accelerate for example, with ongoing growth in data consumption as people communicate and stream more, mobile devices proliferate, and the next generation of 5G telecommunication rolls out. Increased communication is important for the development of a sustainable economy and global cohesion, but the challenge is to decouple this exponential growth from the environmental impacts.

Remote working has moved to a new phase during the Covid crisis and we believe this is unlikely to reverse and holdings such as Cellnex and TeamViewer continue to thrive against this backdrop. Cellnex provides the physical infrastructure for increasing data consumption and communication while TeamViewer is a beneficiary of the shift to more flexible home working, allowing IT departments secure remote access into employee computers to fix issues.

Elsewhere, healthcare holdings such as Lonza Group and Roche continue to contribute to returns and while names such as Grifols have seen their share prices come back slightly in recent weeks, we remain proud of the work these companies are doing in the fight against Covid-19. For its part, Spanish plasma specialist Grifols is a key player in potential treatments: its work, largely pro bono, in helping governments work through Ebola means it has a small but fully functional fractionation plant, which allows it to maximise the safety and efficacy of products.

In terms of top contributors, we saw ongoing strong performance from our core holding ASML, with this Dutch business operating at the forefront of physics and enabling semiconductor companies to further increase computing power. ASML released first-quarter numbers during April, reporting sales within its expected range at €2.44 billion and strong net bookings of €3.1 billion, which shows continued demand for Extreme ultraviolet lithography (EUV).

Infineon, meanwhile, completed its acquisition of Cypress Semiconductor Corporation in April, which the company said is a landmark step in its strategic development towards offering “the industry’s most comprehensive portfolio for linking the real with the digital world and shaping digitalisation”.

This is another of our top-performing holdings playing an interesting role in the fight again Covid-19, with its semiconductors proving essential to control the motors in many ventilators, including those manufactured by global leader in medical devices ResMed. Infineon has remained among our strongest names despite predicting a drop in its automative segment in the second half of the year. CEO Reinhard Ploss said the company is accustomed to coping with crisis situations and put cost-containment measures in place at an early stage of Covid-19. 

Elsewhere, Puma’s shares have recovered well despite a large part of the gym and sport club market being locked down for most of the quarter. CEO Bjørn Gulden said the company is looking at three phases, survive, recover, and grow again, with different end markets in different phases. Puma is mitigating the impact on revenues wherever it can by focusing on e-commerce and the markets opening up and, as an example of strong supply chain management, working with its factories and other partners to minimise the damage, assure timely deliveries and avoid excess stock as much as possible.

Among the negatives over the quarter was the small position we took in CTS Eventim earlier this year. This is Europe’s largest ticketing company for live music and sports, enabling the shift towards a more experience-based economy and away from material consumption as an example of our sustainable leisure theme. We think this is a positive form of consumption as it is usually enjoyed with friends and family and has relatively lower environmental impacts than international travel for example. CTS is also piloting a number of tools to help fans find lower carbon travel to and from events to help further reduce the environmental impacts.

Live music has experienced strong structural growth over the last few decades, with artists touring more as this is their main source of income rather than song rights. The company sold off aggressively during the Covid-19 crisis but we believe the market has misunderstood the ultimate impact on the business as the majority of events are postponed, not cancelled, and CTS has experienced no significant cash outflows.

We are aware growth will be muted until there is a solution to the virus, but the company has a net cash balance sheet, low capital requirements, and the valuation when we bought reflected the very worst scenario. We take a long-term view, and over the next five to ten years, feel the increase in demand and supply for live events will recover once we are able to tackle the virus; indeed, live events grew in absolute terms through the financial crisis despite a dramatic fall in disposable income.

Aquafil has also struggled in recent months with this high-quality industrial business, focusing on recycled nylon, hit hard as its end markets seized up. Again, we believe its long-term returns on capital of close to 20% will return as the world moves through the current crisis.

Two themes challenged in the short term but that we believe will benefit during the recovery are Improving auto safety and Making transportation more efficient. Although there have been positive related impacts during this crisis, such as fewer fatalities on our roads and less air travel, the auto and rail sectors have been hit hard and ultimately our themes rely on their success.

We note the stimulus packages announced by France include a potential €1bn in subsidies for the purchase of electric vehicles. At the same time, passenger rail numbers are beginning to recover and we believe rail’s attractiveness versus air travel will continue to increase on viable routes. Two of our key holdings, auto parts supplier Hella and rail and truck braking mechanism company Knorr-Bremse, have outperformed in the early stages of the recovery.

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 30.06.20, 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.

Thursday, July 16, 2020, 3:28 PM