Liontrust SF European Growth Fund

Q3 2020 review

The Fund returned 4.3% over the quarter, outperforming the MSCI Europe ex-UK Index return of 1.2% and the IA European ex-UK sector average of 2.7% (both of which are comparator benchmarks)*.

In terms of macro developments over the period, European Central Bank head Christine Lagarde acknowledged the public health crisis continues to weigh on economic activity and poses downside risks to the outlook, reassuring markets that the Bank ‘continues to stand ready to adjust all of its instruments, as appropriate’. While the ongoing €1.35 trillion pandemic emergency stimulus has helped stabilise markets, inflation continues to lag far beneath the ECB target of 2%, falling into negative territory in August. This has led many economists to suggest the Bank will act further, possibly as early as its December meeting. While we observe these announcements, our focus is always on the long-term impacts, if any, to our sustainability themes and company theses.

As we have said before, the current situation is unique and it is ultimately impossible to predict the nature of economic recovery. We are long-term optimists but rather than trying to work out 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. The impact of Covid-19 on our health, livelihoods and economies does not change our view that companies exposed to these themes will see strong growth in coming years.

Over a weaker quarter for equities in general, long-term holding Kingspan was once again our best performer, despite a slowdown in construction activities due to lockdown measures around the world. The thermal insulation provider issued the kind of solid results we expect from this market leader: first-half revenues were down 8% in what the group called a period of unparalleled challenges but CEO Gene Murtagh said the rapid introduction of cost containment measures has been key. With over €1bn in cash and undrawn facilities, the company is well placed to come through the crisis in a strong position.

While expecting a weak environment ahead, Kingspan highlighted policymakers’ growing focus on ensuring buildings are more energy efficient – exactly the kind of structural growth trend that underpins our sustainable themes. Its prospects are further brightened by EU and UK commitments to build back better, with a focus on improving the sustainability of our built environment.

Infineon Technologies continues to feature among our top holdings as the German semiconductor giant benefited from an expected recovery in auto demand next year, particularly related to electric vehicles. Our theme of Making transportation more efficient targets companies tied to growth in EVs and the market now expects this to be somewhere in the mid-teens in 2021. Infineon is well set to benefit as the market leader in the chips that power semiconductors in these vehicles.

Among other outperformers, elevator and escalator provider Kone found itself in the enviable position of upgrading its business outlook for 2020 following better-than-expected development in Q3. Kone’s new equipment sales have continued to grow, driven by a high level of activity in China, and service sales have also seen improving momentum compared to Q2. The company now estimates sales growth in 2020 will be in the range of -1% to 2% compared to 2019, revising this upwards from -4% to 0%.

Packaging provider Smurfit Kappa was another strong contributor, with the company also announcing strong first-half results at the end of July. The market reacted well to its decision to pay an interim dividend, having opted to postpone a distribution back in April due to Coronavirus uncertainty. Overall, Smurfit continues to benefit from growing consumer demand for sustainable packaging and a shift away from plastic, and, highlighting its own ESG credentials, the company recently completed its largest ever investment, €134 million in a recovery boiler in Austria, which will reduce its CO2 emissions by 40,000 tonnes. As a group, the company has committed to the science-based targets and set a goal to be a net zero carbon business by 2030, while its products will save thousands of tonnes of carbon in reduced weight and petrochemical replacement.

Unilever also registered a solid quarter, with the company continuing to move its portfolio towards more natural and healthy products. It recently completed the acquisition of the Horlicks brand from GSK and, as further evidence of this focus, announced the acquisition of California-based electrolyte drink producer Liquid I.V. in September. Another company reinforcing its sustainable profile over the period, Unilever outlined plans to source 100% of the carbon in its cleaning and laundry product formulations from renewable or recycled sources. This move is set to transform the sustainability of cleaning and laundry brands including Omo (Persil), Sunlight, Cif and Domestos.

Elsewhere, Puma shares continued to hold up well despite the company enduring what CEO Bjorn Gulden described as the most difficult quarter he has ever experienced in Q2. Also reporting at the end of July, Puma revealed a 30.7% decline in sales over the period, although this masked slowly improving fortunes, falling 55% in April, 38% in May and 6% in June. Gulden said the short-term strategy is focused on flexibility with wholesale partners, promotional activities in retail stores and a larger focus on e-commerce, with full investment in product development in 2021 looking further out. This is another of our Enabling healthier lifestyles stocks hit hard by Covid-19 but we continue to believe in this long-term story given the pressing need to improve fitness levels.

Over the quarter, we trimmed positions in some of these better-performing names, including Kingspan and Puma, adding to some of our more bruised holdings where we continue to see long-term potential, strong balance sheets and compelling valuations, such as CTS Eventim and Basic-Fit.

We note encouraging performance from recent addition CTS, which has seen its share price moving upwards from Covid lows despite reporting a 71.5% year-on-year revenue decline over the first half of 2020 and a 96.6% fall over the second quarter. As we wrote when we bought the stock earlier this year, we believe the market has fundamentally misunderstood the ultimate impact of Covid-19 on the business as the majority of events are postponed, not cancelled.

Looking at weaker performers over the quarter, stocks such as TeamViewer and Grifols gave back some of the share price growth of recent months, although the latter was climbing again in September. With TeamViewer, its products allow customers to control and repair a range of devices remotely and the company is a clear beneficiary of drastically revised working patterns. It was a strong performer in the first half of the year as the pandemic hit but pulled back in Q3 as the market focused more on companies benefiting from the re-opening of economies. 

We feel comfortable it can continue to grow as the need for digitisation and remote working solutions shows no signs of slowing. TeamViewer is also increasingly focused on monetisation, shifting from free-to-paid conversion campaigns everywhere outside of the US. 

Basic-Fit remains among the detractors although the company’s first-half results showed the low-cost gym operator has only lost 9% of members over the period. Since reopening, figures are approaching pre-Covid levels once again, with 2.2 million visits per week, and higher year-on-year joiner figures in June and July. This supports our thesis that ongoing desire for healthier lifestyles will persist and may accelerate as the world moves beyond lockdown conditions.

Svenska Handelsbanken also had a difficult period. The Swedish-based bank boasts an enviable track record within the industry for not losing money during recessions thanks to the unique culture than runs through the business. However, interest rates are at all-time lows and Covid-19 has plunged Europe into a sharp recession; this is not a good combination for any bank and the valuation reflects this. Handelsbanken is trading at around 10 times forward earnings and at a 10% discount to book value as such, we feel the downside in our position is limited and remain long-term holders.

In terms of new holdings, we added Spotify under our Sustainable leisure theme in July. Spotify is the world’s dominant audio platform with close to 300 million monthly active users in over 70 countries and is adding users at nearly twice the pace of its closest rival Apple. It has a unique dual business model that marks it out from peers, with paid-for without ads and free ad-supported options, and the latter serving as an advertising funnel for paying users. While initially launched as a music streaming service, the company is moving into offering podcasts and its own content and we are excited to watch the business expand into audiobooks, live gigs and other areas as it takes advantage of that leading platform position.

Adyen was a further addition, a beneficiary of our Increasing financial resilience theme through making the shift to digital payments safer and more efficient. It operates in a structurally growing market and is rapidly taking share as one of the best (if not the best) solutions in the industry. The business has minimal capex requirements and is entirely focused on organic growth, which should result in continued margin expansion as operating leverage shines through. While the shares are up substantially over the year, our long-term focus enables us to look past the high multiples of today and consider what we think the business will do over the next five years.

A further financial added in Q3 was Sweden’s leading investment platform Avanza (held under our Saving for the future theme), which is disrupting the market with superior technology and customer service. Its customer NPS score was 85% in 2019, incredibly high for the sector and highlighting a superior offering. The exciting aspect for us is how underpenetrated the Swedish investment platform market is: Avanza is the largest by far and only has a 4.5% market share, and yet is capturing some 16% of the net inflows in the industry.

Finally, we also took part in the IPO for Unified Post, a cloud-based digital business services company based in Belgium. The company’s focus is on digital invoicing of business documents such as accounts payable and accounts receivable, but it has also added a number of complementary services including identity management, digital payment facilitation and working capital analytical tools. The market for Unified Post is basically all European SMEs requiring these services and penetration rates in digital invoicing are very low throughout the Continent, with roughly 90% still on paper.

In terms of sales over the quarter, we exited Danish power company Orsted, which had met our estimate of intrinsic value. The company still has three aspects of our process, namely theme, sustainability and fundamentals, but it had reached our five-year target so we recycled the capital across names with more upside. We also sold Legrand, which designs and manufactures electrical and digital equipment. Again, the company had reached our price target so we exited the shares.

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 30.09.20, 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.

Monday, October 19, 2020, 1:11 PM