Liontrust GF European Strategic Equity Fund October 2021 review | Insights

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Fund’s A4 share class returned 3.9%* in euro terms in October. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 4.7% and 2.1% respectively.

The macroeconomic picture remained very similar in October. Energy prices remained elevated, contributing to inflationary pressures; Brent crude, for example, moved above $86 a barrel late in the month, its highest level for around seven years.

The US 5-year breakeven index – the inflation expectation priced into the spread between conventional and inflation-linked government bonds – rose by around 40bps in October to almost 3%. Together with global supply chain problems, this is contributing to inflationary trends which are putting central banks under pressure to act.

However, global equity indices show little sign of investor nervousness over the macroeconomic backdrop, with many of them at or near all-time highs. The MSCI Europe Index notched up a 4.7% monthly gain in euro terms.

There was little discernible pattern to the European market’s sector returns, with the performance table bookended by utilities (+8.2%) and communications services (-2.9%) – two of the most typically defensive areas. There was some evidence of strength in growth-style equities relative to their value counterparts, but the Fund – which has a heavy value tile currently – still recorded a good performance relative to the market in October.

The Fund’s October performance was robust in the context of net market exposure which began the month at under 60%. The good participation in the rally was driven by a long book which kept pace with the market’s rise and a short book which – while still detracting slightly in absolute terms – comprised stocks that on average significantly underperformed.

The Fund’s net market exposure was reduced to 40% over the course of the month as the Fund’s short book was expanded. We increased the short book as a reaction to the high and climbing levels of corporate aggression that our investment process is currently identifying. We view aggressive investment levels as a key contrarian market indicator and expect the Fund’s short book to benefit from this environment of corporate over-optimism.

Portfolio returns were boosted by a sharp rise in the shares in Swedish pump manufacturer Concentric (+55%). It shot higher on news of a $147m deal to acquire Engineered Machined Products (EMP), a US producer of electrical water and oil pumps, electric fans and thermal management systems. The integration of EMP’s product portfolio into Concentric’s offering boosts its sustainable credentials as its clients in transport and infrastructure increasingly move towards carbon-neutral goals.

Italian clothing retailer Moncler (+15%) was also among the long book’s biggest contributors after announcing a marked acceleration in Q3 sales that exceeded its expectations. Sales rose by 33% in the quarter compared with 2019 pre-pandemic levels. The growth was boosted by particularly high growth in its direct-to-consumer channels in China, Korea and the US.

One of the short book’s best positions was an online beauty and nutrition retailer whose shares fell heavily in October as investors were unimpressed by a capital markets day and Q3 results announcement. The Funds also benefitted from a heavy fall in a Norwegian video conferencing provider after it was the subject of a broker rating downgrade. Among the short book detractors was a US renewable energy provider whose Q3 results beat expectations.

Discrete years' performance** (%), to previous quarter-end:

	Sep-21	Sep-20	Sep-19	Sep-18	Sep-17
Liontrust GF European Strategic Equity A4 Acc EUR	36.8%	-14.9%	3.0%	2.6%	5.2%
MSCI Europe	28.8%	-7.8%	5.7%	1.5%	16.3%
HFRX Equity Hedge EUR	16.5%	-2.4%	-3.5%	-1.1%	5.8%

*Source: Financial Express, as at 31.10.21, total return (income reinvested and net of fees).

**Source: Financial Express, as at 30.09.21, total return (income reinvested and net of fees).

Understand common financial words and terms See our glossary

Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in Funds managed by the Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. Some of the Funds may invest in derivatives. The use of derivatives may create leverage or gearing. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. Some of the funds may hold a concentrated portfolio of stocks. If the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio.

Disclaimer

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.