Liontrust SF European Growth Fund

Q4 2019 review

The Fund returned 4.3% over the quarter, outperforming the MSCI Europe ex-UK Index return of 0.9% and the IA European ex-UK sector average of 2.6%*.

With trade wars and Brexit dominating news for the whole of 2019, it was encouraging to see long-awaited developments on both fronts in the final weeks of another year plagued by uncertainty. Despite this macro backdrop, we saw the strongest year for stocks since 2009, with the MSCI Europe up 26.1% in euro terms.

In Britain’s first December general election since 1923, Boris Johnson’s Conservative party won a comprehensive victory, with the largest Tory majority in 25 years. Such a result showed an electorate firmly deciding that to get Brexit done was the priority for the next government.

Meanwhile, December also saw a significant move forward in the near two-year trade war between the US and China, with both sides agreeing to a phase one deal. While details are yet to be confirmed, this saw the US pledge to cut back some of these existing tariffs on Chinese goods and cancel a further round of charges due to be implemented on 15 December.

Elsewhere on the macro front, October also saw Mario Draghi’s swansong at the European Central Bank (ECB), leaving his post as the first president not to raise rates during his tenure. His successor Christine Lagarde chaired her first monetary policy meeting in December, at which she promised to be a wise owl rather than a hawk or dove.

Our investment process continues to find well-managed companies with superior growth and fundamentals, driven by positive sustainability themes. Structural shifts such as energy efficiency, healthier eating and education provide our companies with reliable growth opportunities to compound value over the long term.

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

Semiconductor business ASML features among the top contributors once again, posting solid third-quarter results at the end of October with sales and gross margin both coming in at guidance levels, helped by improved Extreme ultraviolet lithography (EUV) manufacturing results.

We believe commercialisation of this technology will deliver a wide range of significant positive impacts and financial value for ASML and supporting this, the company has confirmed its view, first stated at an Investor day in 2014, of an annual revenue opportunity of 10 billion euros in 2020. 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.

German semiconductor business Infineon also ended a challenging 12 months well, announcing Q4 and 2019 fiscal year results in line with targets and citing strong demand for power semiconductors for renewable energy applications and sensors for consumer devices. Again, the company acknowledged the effects of weak global auto demand and does not expect any improvement for the time being.

Kingspan remains a long-term contributor to returns, with the Irish insulation specialist announcing a major 10-year strategy to reduce carbon emissions by 2030. Its Planet Passionate strategy is made up of 12 targets, addressing the impact of Kingspan’s business operations and manufacturing on the four key areas of energy, carbon, circularity and water.

On energy for example, the target is to power 60% of all Kingspan operations directly from renewable energy with a minimum of 20% of this generated on manufacturing sites (up from 5.9% today).

Several of our financial names were strong performers over the quarter, with Danish bank Ringkjoebing Landbobank (Rilba) continuing to benefit from what it called highly satisfactory financial results, reporting a 6% increase in core income accompanied by an 8% fall in total expenses for the first three quarters of 2019. Rilba continues to buck the trend in European banks by delivering sustainable and profitable growth driven by a relentless focus on customer service.


Roche also remains among the top names, with the company finally able to announce unconditional clearance from the UK’s Competition and Markets Authority for its pending acquisition of Spark Therapeutics. Spark is committed to discovering, developing and delivering gene therapies ‘challenging the inevitability’ of genetic diseases including blindness, haemophilia, lysosomal storage disorders and neurodegenerative diseases.

Roche is a long-term 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

We also participated in an IPO over the quarter, with TeamViewer enjoying solid early growth. The German software company was Europe’s largest IPO in 2019, with the market positive on the company’s remote desktop software offering as working patterns continue to shift.

Of the small number of holdings that saw negative returns over the period, Unilever warned its 2019 sales growth would be slightly lower than guidance in December, citing challenging trading conditions in South Asia and West Africa.

Norwegian metals producer Norsk Hydro also continues to suffer after warning it would miss 2019 expectations due to restricted output in its Brazil facility where the company has taken action to address environmental damage and we sold the stock in October.


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 31.12.19, primary share class, total return, net of fees and income reinvested.


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.

Tuesday, January 21, 2020, 11:30 AM