The Fund’s A4 share class returned 6.4%* in euro terms in December. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 4.1% and 0.2% respectively.
Global equity markets rapidly recovered from the late-November sell-off which was triggered by the emergence of the highly transmissible Omicron variant of Covid-19. While cases have risen rapidly, hopes remain that the economic impact will be moderated by its lower severity and a reluctance by governments to reintroduce substantial curbs on businesses and individuals.
The spike in Covid-19 is only likely to exacerbate inflationary pressures which are already substantial. US consumer price inflation hit 6.8% in November, its highest level since 1982. For the same month, data releases showed inflation at 5.1% and 4.9% in the UK and eurozone respectively.
Having recently accepted that inflation may not be transitory in nature, the US Federal Reserve – as expected – announced an acceleration of its tapering of asset purchases, paving the way for earlier rate rises. In more of a surprise move, the Bank of England decided that price pressures justified a rate increase in December, if only to 0.25%, up from 0.1%. The European Central Bank is taking a much milder approach to combating inflation, cuttings its monthly rate of bond purchases but committing to maintaining them until at least October, while also ruling out any rate rises in 2022.
The European market’s rise was led by cyclical sectors such as industrials (+7.5%) and materials (+6.6%) as the sharp recovery in investor sentiment shaped the market’s December gains.
Given the Fund’s market positioning entering December – a net market exposure of 28%, comprising 116% long book and 88% short book – the outperformance of the market’s sharp rally is impressive. It is even more pleasing in the context of the significant downside protection it had previously afforded during November’s market sell-off.
December’s strong Fund performance comprises a long book which outstripped the market’s rise and a short book that, remarkably, also made a positive performance contribution despite the market’s substantial broad-based gains.
While some parts of the short book made losses as shares rose within the market rally, this was outweighed by a number of stocks that saw significant share price drops, generating profits on short positions. There is evidence that the market has begun to shun the expensive hyper-growth stocks with negative cash flow that we are tending to short in the current environment. Among these, a US manufacturer of fuel cells for clean energy suffered a large fall ahead of Q4 results which included a larger-than-expected operating loss. The Fund also has short positions in two European online pharmacies, both of which fell heavily on news that Germany is suspending the planned introduction of an e-prescription system.
The long book’s top performers included the likes of French catering group Elior (+12%), which bounced back from being one of the most negatively impacted by resurgent Covid-19 fears in November, Italian car manufacturer Stellantis (+10%) and Swedish robotics and automation specialist ABB (+10%), neither of which issued significant corporate updates. Norwegian shipping and logistics giant AP Moller-Maersk (+19%) also made further ground following last month’s well-received Q3 results.
Discrete years' performance** (%), to previous quarter-end:
|
Dec-21 |
Dec-20 |
Dec-19 |
Dec-18 |
Dec-17 |
|
|
Liontrust GF European Strategic Equity A4 Acc EUR |
32.9% |
-10.0% |
23.2% |
-7.1% |
4.2% |
|
MSCI Europe |
25.1% |
-3.3% |
26.0% |
-10.6% |
10.2% |
|
HFRX Equity Hedge EUR |
11.0% |
2.9% |
8.5% |
-12.3% |
7.8% |
*Source: Financial Express, as at 31.12.21, total return (income reinvested and net of fees).
**Source: Financial Express, as at 31.12.21, total return (income reinvested and net of fees).
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.
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