Liontrust GF European Strategic Equity Fund

European markets experienced considerable volatility in August, driven by global economic challenges and interest rate expectations. At the start of the month, a sharp sell-off was triggered by disappointing U.S. employment data and an unexpected rate hike from the Bank of Japan. These factors led to a significant drop in global equities, including in Europe, before markets recovered later in the month as investors started pricing in potential rate cuts by central banks. Real estate (+4.2%), healthcare (+4.1%) and communication services (+3.4%) were among the strongest performing sectors in the wider MSCI Europe index, while energy (-3.1%) and information technology (-1.4%) were the only two sectors to post a negative return over the month.

Despite a rise in European markets over the month, the short book was able to make a positive contribution to returns. The short book averaged 35% of NAV for the month and, on average, its shares dropped by over 2.7%, making a performance contribution to the Fund of around 0.9%. The Fund’s long book was also a positive contributor over the period, albeit behind the benchmark return, returning 0.7%.

Among the long book top performers was Norwegian home textile and interior retailer Kid (+17%), which performed strongly on the announcement of robust Q2 results, in which it reported revenues of NOK 797.8 million, an increase of 10.2%, with strong contributions from both Kid Interior and Hemtex segments.

Dutch payment company Adyen (+18%) strengthened as net revenue for the first half beat estimates due to gains from both new and existing customers. Adyen, which handles e-commerce payments for large enterprises and through point-of-sale terminals in physical stores, reported that net revenue increased 24% from a year earlier to €913.4 million for the six months through June, driven by gains in market share, strategic international expansion, and cost management.

Danish jewellery manufacturer and retailer Pandora (+9.3%) posted strong organic growth in Q2, while also lifting its revenue guidance for the full-year. The company reported consensus-topping Q2 revenues of DKK 6.77 billion, with organic revenue growth of 15% slightly surpassing expectations. Following a solid quarter, Pandora upgraded its FY24 revenue guidance to 9-12% organic growth from the previous 8-10%, reflecting strong momentum.

Within the Fund’s short book, a positive contribution came from a liquefied natural gas (LNG) development company which saw a court revoke the company’s permit for its liquefied natural gas export complex. A sports equipment company was also a positive contributor after its shares fell following the release of lacklustre Q2 results.

Turning to the detractors in the long book, 4imprint (-13%), the supplier of promotional merchandise, saw its shares fall after analysts noted a drop in the amount of revenue it makes from each marketing dollar due to weaker economic conditions. Despite this, 4imprint managed to grow revenue by 5% between January and June, and operating profit rose by 10% to $69.9 million. Orders from new customers totalled 250,000, 8% below 2023 levels, but demand from existing customers continued to climb and the average value of orders also rose by 2%.

Shares in Tenaris (-13%), the manufacturer and supplier of steel pipes for the energy industry, fell after margins for the second quarter were affected by an ongoing decline in OCTG (durable and robust steel) prices in the Americas, while net income was negatively impacted by a $171 million extraordinary provision.

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

*Source: Financial Express, as at 31.08.24, 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.

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. The Fund uses derivative instruments that may result in higher cash levels. Outside of normal conditions, the Fund may choose to hold higher levels of cash. Cash may be deposited with several credit counterparties (e.g. international banks) or in short dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash. There is no guarantee that a positive absolute return will be generated over any time period.

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