Liontrust SF European Growth Fund

Q4 2018 review

The Fund returned -12.2% in absolute terms over the quarter against the MSCI Europe ex-UK Index’s -11.0*, resulting in underperformance of 1.2%.

Sentiment remained fragile through the period, although hints the Federal Reserve may soften its interest rate stance and a three-month trade ceasefire between the US and China eased concerns to some extent. Hopes for the traditional year-end rally ended in disappointment however and most indices around the world posted negative figures for 2018 as a whole.


One piece of positive news on the Continent saw Italy’s government pledge to lower its deficit target from 2.4% to 2% in an attempt to end its standoff with the European Union. We always felt this situation would remain a difficult negotiation rather than turning into anything more serious and were reassured to see the government’s capacity for negotiation with so many more battles ahead.

Meanwhile, European Central Bank head Mario Draghi confirmed the €2.6tn stimulus programme will end in January despite concerns the eurozone is poised to slow over the next couple of years.

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 although exposure to the industrials and energy sectors were both positive.

In a difficult quarter, our stronger positions included Roche, which continues to show progress with both its recent launches and pipeline. Thematically, Ocrevus in MS and Hemlibra in Hemophilia have both seen good uptake since launch, demonstrating that true innovation will be quickly taken up by patients and healthcare payers.

As such, 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 biosimilar erosion to its core oncology franchises

Elsewhere, recent addition Puma featured in the best performers, with the company reporting positive third-quarter results.

Educational publisher RELX also made a contribution, with news that the group is planning a £100m takeover of weekly magazine Times Higher Education. The company is a beneficiary of our Providing education theme and, having successfully managed the transition from print to digital, is now moving towards value-add decision making and analytical solutions. RELX has dominant market positions in each of its four markets and there are significant barriers to entry for competitors.

Two healthcare names, Fresenius and Abcam, were our weakest performers, with both needing higher-than-expected Capex.

Fresenius has historically been seen as a well-diversified and well-run company providing affordable healthcare through its multiple subsidiaries. Occasional upset in one any of these tended to be positively offset by strength in the remaining businesses.

In 2018, however the market had concerns in more than just one subsidiary and the company experienced regulatory uncertainty in both its German Hospital and North American Dialysis businesses. Ultimately, such uncertainty meant the company had to invest far more in its business than originally expected and it issued a profit warning in December, causing a large drop in the share price.

We believe one of the group’s divisions, Fresenius Medical Care, offers better exposure to our themes and greater upside potential from here and have therefore switched our entire Fresenius SE position into Fresenius Medical Care. 

Abcam, meanwhile, has acknowledged it needs to take larger steps to grow its business than originally anticipated, including a new HQ and IT systems (Enterprise Resource Management). The latter has cost more and taken longer to roll out than originally anticipated.

Elsewhere, Smurfit Kappa has continued to struggle, along with most of the paper and packaging industry, but we feel the company is well placed to play an important role in the ongoing recycling debate.

There remain concerns about slowing growth hitting demand for paper and packaging, which is typically very cyclically sensitive. We have also seen more industry-specific worries regarding the pricing impact of over-capacity in the US and China, with a number of new paper mills being built. Despite these questions however, our thesis remains intact: Smurfit has a competitive advantage via its vertically integrated supply chain and the supply-demand equilibrium is balanced in Europe, resulting in stable prices.    


A number of auto names also had a tough quarter, including Umicore and Hella. Although we expect these names to deliver long-term structural growth, the short-term pressures are significant and we have exited Valeo and trimmed our technology position.


We remain committed to Umicore and Hella at this stage as we believe they can succeed from maintaining market-leading positions in our Improving auto safety theme.


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 31.12.18, 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, February 4, 2019, 10:42 AM