Liontrust GF European Strategic Equity Fund

The Fund’s A4 share class returned 0.3%* in euro terms in September. The Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned -0.4% and 0.6% respectively.

Newsflow in equity markets leading into the month was primarily focused on the widely anticipated US interest rate decision – with the US Federal Reserve pushing ahead towards the end of September with a 50 basis point cut, providing a lift to market sentiment. This development was soon followed by a series of stimulus measures from China in a further boost to investor confidence; however, concerns over geopolitical risks, especially the ongoing conflict in the Middle East, added some volatility to markets towards the end of the month. In Europe, having kept interest rates on hold in its July meeting, the European Central Bank (ECB) cut rates by 25 basis points in September, citing that data indicated a softening of inflation over the period.

The MSCI Europe Index lagged both its US and UK peers in September, with the energy (-7.3%), healthcare (-6.9%) and information technology (-2.8%) among the largest fallers. Among sectors to post a positive return were materials (+5.1%), real estate (+4.7%) and information technology (-2.8%).

Both the Fund’s long and short book performed well in September, with the former outperforming the MSCI benchmark with a positive return of 0.3%. The short book averaged 30% of NAV for the month, and falling share prices helped it make a small positive contribution to Fund performance.

Within the Fund’s long book, Gamma Communications shares rose after the company said it is considering moving its listing to London's main market, while it also posted robust first-half earnings. Gamma reported a pre-tax profit for the half year of £48.5 million compared with £43.5 million for the comparable period a year earlier. For the year as a whole, the company said it expects adjusted earnings to be in the top half of expectations, with the company continuing to view M&A as a key tool to complement its organic growth, broaden its capabilities.

Industria de Diseño Textil (Inditex), the Spanish multinational clothing company, posted strong net profit for the first half of the year, despite slower sales growth. The company reported that its profit rose 10% to €2.8 billion in the first six months of its financial year, driven by robust sales from its spring/summer collection.

In the Fund’s short book, a positive contribution came from a position in a French video game publisher after its shares tumbled following lacklustre sales figures from a big budget game release. Shares in the company fell even further after a minority investor called for the company to go private. A short position in a UK-based vertically integrated semiconductor company also proved beneficial as the company swung to a loss in the first half while revenues halved, which it blamed on the timing of specific customer programmes.

There was a significant amount of newsflow on Novo Nordisk in September, causing downward pressure on its share price. It was reported that Ozempic, Novo Nordisk’s blockbuster diabetes drug, could be one of the next drugs targeted for a price cut in bargaining with the US government’s Medicare program. This comes under the Inflation Reduction Act, which empowers the US government to negotiate drug prices with manufacturers, potentially leading to significant reductions in costs.

The company’s shares also weakened on disappointing data from a clinical trial with its obesity drug, Monlunabant. Finally, an analyst covering the stock reported that sales of its blockbuster weight-loss drug Wegovy may be weaker-than-expected.

Shares in US software company Adobe fell in the month. Most notably, the software company gave a fourth-quarter forecast that was weaker than expected as monetisation for its new artificial intelligence tools appears to be taking more time than expected.

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

*Source: Financial Express, as at 30.09.24, total return (income reinvested and net of fees).

**Source: Financial Express, as at 30.09.24, total return (income reinvested and net of fees). Investment decisions should not be based on short-term performance.

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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