Liontrust SF European Growth Fund

Q3 2019 review

The Fund returned 1.7% over the quarter, matching the return from the MSCI Europe ex-UK Index and outperforming the IA European ex-UK sector average of 0.5%*.

We saw another busy quarter on the policy front, with the Federal Reserve and European Central Bank (ECB) both cutting rates – twice in the case of the former – and the latter also announcing open-ended quantitative easing (QE) from November.

With inflation falling, Germany skirting recession and the ongoing US/China trade war sapping confidence, the ECB had all but promised more support to the economy and the only question was how extensive stimulus would be. Meanwhile, taken by many as a tacit acknowledgment of how these measures will hit the financial system, the ECB also eased the terms of its long-term loans to banks and introduced a tiered deposit rate to help these businesses.

Concerns facing markets – in the shape of Brexit and trade wars – continue to be significant but they are also largely political and could be swiftly resolved. This makes positioning difficult and we maintain our balanced approach, looking for companies with sustainability-based growth that can weather these short-term storms and also deliver value for the decades to come.

We look for businesses that enable the shift towards a global economy that is more efficient, provides a higher quality of life and is more resilient. We believe these high-quality companies, with structural growth and strong fundamentals, will outperform over the long term.

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

ASML was once again among our stronger performers as the company released a solid set of second-quarter numbers in July, with sales within guidance and gross margins above guidance, helped by improved Extreme ultraviolet lithography (EUV) manufacturing results. Despite ongoing concerns around the economic outlook and semiconductor cycle, the company is now delivering these machines on a commercial scale and reconfirmed its positive growth outlook for 2019.

While acknowledging short-term volume demand uncertainties due to macroeconomic developments, the company remains confident on the longer-term outlook based on a positive view on technology drivers such as 5G communications, automotive, artificial intelligence and data centers.

Elsewhere, Roche was a solid contributor, with the company once again extending its offer to buy US gene therapy specialist Spark Therapeutics. As regulators continue to scrutinise the deal, analysts believe the long delay may be down to competition concerns about what the combined entity would mean for the hemophilia market.

Roche is a key beneficiary of our Enabling Innovation in healthcare theme and reinforcing that, the company has the highest number of Breakthrough Therapy designations in the industry. Such progress continues to help alleviate market concerns about pressure from potential erosion to its core oncology franchises

Financial exposure was again key to our performance, with names including 3i and Banca General featuring among the top contributors. 3i said it is on track to meet targets, buoyed by stronger-than-expected performance from newest investment Joulz, an energy infrastructure provider, acquired in May. As for Banca Generali, we continue to see this as a unique asset gathering business in Italy and the company also reinforced its sustainable credentials over the period, winning the Leone D’Oro 2019 Award for Best Italian Bank for ESG Strategy.


Familiar names such as Puma and Cellnex also posted strong results, as did recent additions Orsted and Verbund plus leading data centre player Interxion, with this latter three all exposed to our theme of reducing carbon emissions.Interxion

With Interxion, the technology industry emits high levels of carbon so more efficient data centres are vital to efforts to reduce emissions. The business announced Q2 results in August, outlining revenue growth of 14% and incremental investments in Frankfurt, Paris, Marseille and Stockholm in response to growing customer demand and orders.

Among the detractors, SAP also saw its share price drop off despite announcing double-digit growth in total revenue, cloud revenue and non-IFRS operating income for Q2. Commenting on the results, CFP LUKA Mucic said this performance is remarkable considering the margin headwinds from the company’s latest acquisition and recent short-term trade-related uncertainty in Asia.

Wind turbine business Siemens Gamesa has also continued to struggle in challenging markets, releasing mixed Q3 results with good orders and revenues but margins missing estimates. The stock, which is very sensitive to short-term newsflow, sold off as a result.

We continue to believe the company is well positioned with its leadership position in offshore wind turbines and good global footprint into emerging markets. It is a beneficiary of our Increasing electricity generation from renewable sources theme and with significant structural demand for lower carbon electricity generation exported, the company is well set to capitalise.

In terms of activity over the period, we added German stock Knorr Bremse to the portfolio as part of our developing thinking about the transport picture. One way trains can take market share from aviation lies in high-speed rail and Knorr Bremse’s braking systems can have a key impact on safety, which unlocks speed.

We also added two names under our Enabling healthier lifestyles theme, Italian fitness equipment manufacturer Technogym and low-cost gym operator Basic-Fit, which is active in five countries, the Netherlands, Belgium, Luxembourg, France and Spain.

The fitness industry is undergoing structural growth, with gym penetration rates and activity levels continuing to increase as people recognise the need to exercise more to tackle obesity, Type 2 diabetes and inactivity. This shift leads to the sportwear, gyms and fitness equipment markets growing steadily over the coming decades.

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 30.09.19, 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, October 21, 2019, 8:36 AM