Liontrust GF European Strategic Equity Fund November 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 1.2%* in euro terms in November. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned -2.5% and -1.3% respectively.

For most of the month, investors continued to focus on when growing inflationary forces would prompt central bank action. While the Bank of England surprised by declining to raise interest rates at its November meeting, the US Federal Reserve confirmed it would immediately start scaling back its $120bn a month bond-buying programme. With US consumer price inflation for October later revealed to be running at 6.2%, the fastest annual pace since 1990, the re-nominated Fed Chair Jay Powell commented that it was time to retire the term “transitory” as a description of current price pressures.

But events in the final week or so were the most decisive in terms of market direction, with news of a new Covid-19 variant pushing global equity markets sharply lower. As European markets slid, only two sectors of the MSCI Europe Index stayed in positive territory in euro terms: communication services (+1.3%) and real estate (+0.5%). Energy (-6.5%) and finance (-5.6%) were the weakest sectors.

In light of the market’s sharp turn lower at the end of the month, the decision to reduce the Fund’s net market exposure in October proved well-timed. Nevertheless, the Fund remains net long of the market, so the positive performance in November is indicative of a very strong performance from the Fund’s short book.

The Q3 reporting season triggered sharp share price drops for a number of stocks in which the Fund has short interest. These included: a US synthetic biotech company where supply chain problems contributed to a revenue and earnings miss; a US wind blade manufacturer that cut its full-year sales guidance; and a US ID authentication specialist that suffered broker downgrades in the wake of its earnings release.

Within the Fund’s long book, the composition of detractors reflects concerns about the impact of Omicron on the economy. Auto giant Stellantis, catering group Elior Group, cruise operator Carnival and high street jewellery retailer Pandora were all among the heaviest fallers.

Other stocks within the long book are faring better in the current environment. Q3 results from Norwegian shipping and logistics giant AP Moller-Maersk (+6.4%) showed the extent to which it is benefiting from the current global supply chain problems. Higher freight rates drove revenues up to $16.6bn, a 68% year-on-year rise. The benign operating environment allowed for a trebling of EBITDA (earnings before interest, tax, depreciation and amortisation) to $6.6bn. A good set of Q3 numbers also helped Concentric (+8.5%) consolidate on October’s very strong gains.

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).

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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.

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