The Fund delivered a return of -0.6% over the period in euro terms, versus the MSCI Europe Index’s 1.3% return (which is the comparator benchmark)*.
Shares in Europe moved lower in Q2 amid volatility caused by the announcement of parliamentary elections in France and subsequent fallout as the centrist government lost ground. Elsewhere, the European Central Bank (ECB) became the second major central bank to cut interest rates in June, though this was followed by fairly hawkish comments regarding the path to further rate cuts.
Weakness from mid and small cap stocks – where we retain a long-term overweight versus the benchmark – was exacerbated by large cap momentum in companies such as Novo Nordisk and adverse movements in interest rates which were expected to move lower at a faster pace.
Despite all the focus on inflation and rates, the long-term success of the Fund will not be determined by calling which quarter interest rates will drop. That is why we remain focused on the long-term sustainability drivers toward a cleaner, safer and more efficient economy. These long-term drivers of growth have persisted for decades and we believe will continue on well into the future with structural shifts such as an ageing population, a digitising economy and a race to decarbonise our energy system.
Th companies we select are typically smaller in size, growing at a faster rate than the market and have been very much out of vogue with the market given a higher cost of capital. However, with the rate hiking cycle peaking with normalising inflation, we believe that our process and high quality companies are well set to deliver strong share price appreciation from here with attractive valuation across the portfolio.
In terms of portfolio performance, the top performer in Q2 was ASML, the leader in improving semiconductor fabrication through EUV development and holistic lithography. Held under our Improving the efficiency of energy use theme, shares in ASML rose after reports suggest that this year's sales might get a boost from a shipment of the latest chipmaking machine to Taiwan Semiconductor Manufacturing Company (TSMC). The company also continues to benefit from investor excitement around artificial intelligence and the associated use cases for semiconductors.
Spotify, the world’s dominant audio platform, was another top contributor after reporting a swing back to profit in the first quarter, as the company boosted subscribers and added new features. Held under our Encouraging sustainable leisure theme, Spotify announced that paid subscribers rose 14% year-over-year to 239 million, while total active users grew to 615 million.
While the company fits into our leisure theme, the environmental impacts of music consumption, now that this is virtually all digital, has reduced to the energy consumed by data centres and device use. This has dramatically reduced the environmental impact from physical records and discs which has issues with energy intensive hydrocarbon derived plastics and pollution issues with the eventual end of life of the disc.
Shares in private equity company 3i Group rose after reporting its main holding, discount store chain Action, continues to perform strongly. 3i announced that the supermarket has seen like-for-like sales growth of 9% so far this year, with 107 new stores opened compared to 84 at this point last year. Held under our Enabling SMEs theme, 3i has a model based on investing and supporting businesses for growth predominantly in the retail, infrastructure, healthcare, technology and industrial sectors.
Among the detractors was Adyen, a pure-play payments platform which is held under our Enhancing digital security theme. Adyen’s shares slumped after a slowdown in the company’s net revenue growth (to 21% year-on-year in Q1) led total revenue to €438 million to fall short of analyst’s expectations. Adyen operates a global payments platform, integrating the full payments stack: gateway, risk management, processing, issuing, acquiring, and settlement. They take a small charge on all transactions they process and win by having a single technology platform that is scalable, efficient and has minimal fraud rates. We strongly believe that any company whose revenues are generated from the safe shift away from cash to digital payments is one that provides net benefits to society.
Bioprocessing equipment and consumables manufacturer Sartorius Stedim reported a year-on-year decline in net profit and sales revenue for Q1. Exposed to our Enabling innovation in healthcare theme, Satorius’ equipment is used by the pharmaceutical industry in the development and manufacture of the next generation of pharmaceutical treatments (biologics) including gene & cell therapy. The company reported that net profit for the three months to the end of March was €56.1 million, compared with €111.1 million a year ago. We decided to add to our position believing in the long-term growth prospects for this high-quality company.
AutoStore, the market leader in “cubic” automated storage and retrieval systems for warehouses, fell after missing estimates on both revenue and earnings in Q1, while also receiving a ‘sell’ recommendation from an analyst. Held under our Improving the resource efficiency of industrial and agricultural processes theme, AutoStore has developed a compact design to store and retrieve products in warehouses in a simple Rubik’s cube design. The system uses autonomous robots moving on top of an aluminium grid to store and retrieve bins and deliver products to port stations for packing and transport.
Trainline, another detractor over the quarter, is a good example of a long-term holding progressing well operationally and financial but is out of favour as a UK smaller technology company. Held under our Making transport more efficient theme, Trainline’s technology platform is digitising rail and bus ticketing in the UK and Europe, enabling lower impact forms of transport by reducing friction for travellers and helping operators to manage capacity.
Since 2019, Trainline has grown revenues by 89% and has nearly doubled gross profit and adjusted EBITDA – however during this period the share price has disappointed. Trainline, in addition to generating healthy profit growth, has a robust balance sheet and continues to invest to further extend their competitive advantage. We believe the company is very attractively valued given the highly profitable business model and future growth prospects and we remain invested for the long-term despite the poor share price performance.
After a quiet Q1 of trading activity, we took the opportunity to capitalise on some of the volatility caused by changes in interest rate expectations by initiating positions in ICON, Stevanato, ASM International and Wise. Held under our Enabling innovation in healthcare theme, ICON provides outsourced research services to pharmaceutical, biotechnology, medical device, government and public health sectors. It offers a range of specialised services to assist pharmaceutical, biotechnology and medical device companies to bring new drugs and devices to market faster.
Stevanato was added under our Enabling innovation in healthcare theme, and provides drug delivery and engineering solutions to key customers in the pharmaceutical, biotech, and life science industries. It is a market leader in ready to use glass vials and pen cartridges. Using its expertise in science and engineering, it has built a competitive advantage in the offering of higher value add solutions for its customers rather than generic commoditised containers.
ASM International, the market leader in Atomic Layer Deposition (ALD) manufacturing tools for the semiconductor industry, was added under our Improving the efficiency of energy use theme. ALD is a critical process for customers to produce chips in a Gate-All -Around (GAA) architecture, which enables an improvement in energy efficiency of approximately 25%.
We sold our position in rail and bus transportation platform Trainline over the period. While we still like Trainline, we preferred the risk/reward opportunities in money transfer company Wise, and sold our position to build a stake in the company. Added under our Transparency in financial markets theme, Wise’s mission is to bring transparency and fairness to into moving money around the world. This covers pricing of products and sharing the economies of scale. Their mission is to bring FX costs down to zero.
Traditionally, foreign exchange has been very costly for individuals especially those remitting small amounts regularly. Wise offers a significantly better rate, lower fees, and very simple app based approach. Offering better rates is not just about having more to spend on your holiday, for migrant labour the typical 6% charge to remit earnings has very real impacts on household spending. Wise can reduce this by 60% on average.
We exited Basicfit after we lost conviction in the fundamentals of the business, with particular worry about the rapid expansion of sites in France and not achieving the requisite number of members to reach the desired returns on capital. Combining this worry about returns the balance sheet looks slightly stretched, we therefore saw better risk return in other areas of the Fund.
We also sold international payment service provider Edenred following the accusations of management fraud in Italy led to a downgrade in our ESG matrix rating. Coupled with this, we believe a recent string of acquisitions completed at expensive valuations will likely result in lower returns on capital in the long-term.
Discrete years' performance (%) to previous quarter-end**:
|
|
Jun-24 |
Jun-23 |
Jun-22 |
Jun-21 |
Jun-20 |
|
Liontrust GF SF Pan-European Growth Fund A1 Acc |
9.6% |
5.9% |
-22.5% |
29.4% |
8.1% |
|
MSCI Europe |
13.7% |
16.7% |
-6.5% |
27.9% |
-5.5% |
|
|
Jun-19 |
Jun-18 |
Jun-17 |
Jun-16 |
Jun-15 |
|
Liontrust GF SF Pan-European Growth Fund A1 Acc |
1.0% |
1.1% |
17.6% |
-12.1% |
25.8% |
|
MSCI Europe |
4.5% |
2.8% |
18.0% |
-11.0% |
13.5% |
*Source: FE Analytics, as at 30.06.24, total return, net of fees and income reinvested
**Source: FE Analytics, as at 30.06.24, primary share class, total return, net of fees and income reinvested
Key Features of the Liontrust GF SF Pan-European Growth Fund
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.
All investments will be expected to conform to our social and environmental criteria. Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. The Fund may, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves 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 use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. 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. The use of derivative contracts may help us to control Fund volatility in both up and down markets by hedging against the general market. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
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.
