- Global equity markets endured a see-saw quarter, including a sharp sell-off in August and the long awaited first interest rate cut from the US Federal Reserve.
- Haleon and On Holding were among the top performers following strong earnings releases, while ASML weakened following softening sentiment in the semiconductor space.
- Trade activity was fairly minimal in Q3. We sold our holding in Infineon Technologies, and purchased Italian industrials company Interpump under our Improving the resource efficiency of industrial and agricultural processes theme.
The Fund delivered a return of 3.3% over the period in euro terms, versus the MSCI Europe Index’s 2.4% return (which is the comparator benchmark)*.
The third quarter of 2024 saw the long anticipated cut in interest rates from both the US Federal Reserve and the Bank of England. This was precipitated by moderating inflationary pressures and a weakening macro-economic environment. Risk assets have been torn between the benefits of easing monetary policy and the potential weakening of the global economy. The summer began with markets pricing in little risk of a recession in the US, by the end this risk was clearly more of a concern with mixed economic data. In short, markets started the quarter worried about inflation and interest rates and ended it worried about growth.
Looking more closely at Europe, the manufacturing sector remains weak – particularly in the Germany industrial segment. With weak demand from within Europe and slowing exports to important markets like China, some forecasters are predicting a German recession in the coming quarters. Linked to this weakness, the European Central Bank cut rates by 25 basis points for a second time in September. These moves were ahead of the US Federal Reserve and they have signalled further easing at the next meeting in October.
UK equity markets continued to perform well over the quarter. The Bank of England embarked on a rate cutting cycle with easing inflationary pressures, and a new labour government has provided some much needed political stability – in contrast to the uncertainty in European politics. Despite stronger performance, the UK equity market remain cheaper relative to European and US valuations.
As always, we are more observer than predictor of macroeconomic data.
In terms of portfolio performance, Haleon, the consumer healthcare business spun-out of GSK, saw its shares rise after a well-received half-year results release. Held under our Enabling healthier lifestyles theme, Haleon focuses on leading health and personal care brands categories such as oral care and pain relief. Haleon’s second quarter revenue grew by 4.1%, in line with expectations, with price increases contributing strongly to growth and volumes growth outperforming many peers. Underlying operating profit for the first half was up by 11% to £1.3 billion, reflecting revenue growth and easing cost inflation. The company also upped its full-year guidance to “high-single-digit organic profit growth”, following 6% growth for its power brand, including double-digit rises for Sensodyne, Parodontax and Centrum.
Swiss sports brand On Holding was another strong performer in Q3. Early in the quarter, the company which is held under our enabling healthier lifestyles theme, reported second quarter results that were well-received by the market, while it also reiterated its full year outlook for sales growth of around 30%. The company continues to take market share whilst incumbents such as Nike, Lululemon and Puma continue to demonstrate slowing growth.
With regards to its sustainability credentials, On has developed its brand to focus on performance and sustainability and are constantly innovating to improve the quality and reduce the impact of its products. Some of its innovations include a resale platform for used goods called Onward, a subscription product service called Cyclon designed to close the loop in footwear and apparel, as well as aiming for 100% recycled or organic cotton and 100% recycled polyester and polyamide. We believe the company is well placed to benefit from our Enabling healthier lifestyles theme as people focus more sports and activity.
Bioprocessing equipment and consumables manufacturer Sartorius Stedim reported revenue for the first half-year that met consensus estimates. 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. We continue to believe in the long-term growth prospects for this high-quality company.
Despite Dutch semiconductor chip equipment maker ASML reporting better-than-expected earnings for Q2, it was Fund’s largest detractor in Q3. Following a slump in growth in Q1, the company reported net bookings of €5.6 billion in Q2, up 24% from a year ago. While these strong sales figures are encouraging, it was overshadowed by news of more US restrictions on its business in China. Shares in ASML fell sharply after reports that the US is considering using the most severe trade restrictions available if companies including ASML continue to give China access to advanced semiconductor technology.
The poor performance in the second quarter was followed by a c.15% downgrade of sales growth guidance for 2025 – with the Q3 order book particularly disappointing investors. Whilst the company remains confident in the long-term demand for their lithography machines, driven by AI demand, they have cited customer caution impacting their willingness to invest in semiconductor manufacturing capacity.
Danish hearing-aid and audio equipment company GN Store Nord reported weaker-than-expected earnings for the second quarter. Whilst hearing aid sales continue to recover from a demand slump during COVID-19 and gain market share with a new product release, sales in their professional headsets segment continued to move sideways with customers unwilling to invest. Despite this weakness, there is good evidence to this is more a purchasing delay – demand will eventually return and has maintained a greater than 50% global market share
Shares in German sportswear maker Puma tumbled after it reported lacklustre Q2 results, while also lowering its profit forecast for the year, citing cautious consumer sentiment and higher freight costs. Puma’s underperformance is disappointing, with the share price now discounting little growth or improvement in profitability. At present we think this forecast is overly pessimistic and on a positive note the company has started to use their strong balance to repurchase shares and boost our share of the business.
We initiated a position in Italian industrials company Interpump under our Improving the resource efficiency of industrial and agricultural processes theme. Interpump focuses on resource efficient high pressure water jetting equipment, as well as durable and efficient hydraulic systems. Its products help to reduce water and energy consumption in industrial processes, and reduce toxic chemical use in water jetting. After a period of particularly strong post COVID-19 growth, the hydraulics market is now slowing. This has provided an opportunity to buy share in this high-quality business at a discount to the long-term valuation.
To fund our purchase of Interpump, we sold our stake in Infineon Technologies. Infineon is a global leader in analog and power semiconductors used in wide range of industrial applications. We have held Infineon for nearly 10 years and have enjoyed strong long-term performance in the shares. Despite the attractive valuation, we are concerned about the level of exposure to the automotive sector, particularly the Chinese market, which we fear could raise tariffs against products on Infineon exports. We have returned the company to our watchlist and could repurchase shares provided more clarity on growth.
Discrete years' performance (%) to previous quarter-end**:
|
|
Sep-24 |
Sep-23 |
Sep-22 |
Sep-21 |
Sep-20 |
|
Liontrust GF SF Pan-European Growth Fund A1 Acc |
20.6% |
9.9% |
-32.9% |
30.5% |
10.1% |
|
MSCI Europe |
18.8% |
19.2% |
-11.0% |
28.8% |
-7.8% |
|
|
Sep-19 |
Sep-18 |
Sep-17 |
Sep-16 |
Sep-15 |
|
Liontrust GF SF Pan-European Growth Fund A1 Acc |
4.7% |
-4.3% |
15.8% |
0.7% |
15.6% |
|
MSCI Europe |
5.7% |
1.5% |
16.3% |
1.8% |
2.6% |
* Source: FE Analytics, as at 30.09.24, total return, net of fees and income reinvested
** Source: FE Analytics, as at 30.09.24, 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.
