Liontrust GF European Smaller Companies Fund 2024 review | Insights

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

European markets rally despite expectations of monetary easing being pared back
Fund’s balance across growth and value style allow stock-picking to drive returns; Pandora, 4imprint Group and Playtech were among the largest gainers
Constructive outlook underpinned by reasonable valuations and falling corporate mal-investment

The Fund’s A3 share class returned 13.0%* in euro terms in 2024. This Fund’s target benchmark, the MSCI Europe Small Cap Index, returned 5.7%.

Market Review

European markets rallied over the year despite expectations of monetary easing being pared back. Markets started 2024 expecting between six and seven quarter-point cuts from the European Central Bank (ECB) in 2024, but only four were delivered (taking the refinancing rate to 3.15%). The ECB maintained its messaging that future rate changes will be heavily data dependent.

Positive sentiment seemed to stem from an increased confidence among investors that central banks’ policy tightening efforts have successfully walked the fine line between bringing down inflation and allowing the economy to maintain some momentum. While inflation is slowly coming down towards target, economic growth is proving more resilient than expected.

Towards the end of the year, politics became the source of some turbulence for European markets, as the US election victory for Donald Trump led to concern that ‘trade war’ policies could be revived with damaging consequences for the European economy.

Finance (+27%) was the strongest sector in the MSCI Europe over the period, followed by communications services (+16%), industrials (+15%) and IT (+13%). Energy (-4.5%), materials (-2.5%) and consumer staples (-1.8%) lagged.

Analysis of Portfolio Return

The portfolio is now modestly positively exposed to both growth and value styles. This balanced style profile of the Fund allowed stock-picking to drive its strong performance in 2024.

Danish jewellery retailer Pandora performed well, particularly towards the end of the year after it reported Q3 results. Organic sales growth of 11% included a 7% like-for-rise, with the remainder coming from store network expansion. Pandora also lifted its 2024 growth guidance to a range of 11% to 12%, the high end of its prior 9% to 12% range.

Promotional merchandise manufacturer 4imprint Group was another large positive contributor. The shares jumped early in the period following a trading update which announced that full-year pre-tax profit will be at least $140 million, ahead of the higher end of analyst forecasts. This good trading momentum carried over into 2024 as an AGM statement in May outlined that the first four months of the year had seen 6% year-on-year revenue growth, comprising 4% order intake growth and a 2% improvement in order value.

Gambling software company Playtech rose on news that it was in talks with Flutter Entertainment Plc on the potential sale of its Italian unit, Snaitech – a deal which was confirmed in September. Its shares were also bolstered by its upgrade to 2024 adjusted earnings guidance (to be slightly ahead of consensus expectations), mainly driven by a strong performance within its B2B division.

With finance sector stocks leading the European market over the period, the Fund’s banks were an area of significant strength, benefitting from the revival of the “higher-for-longer” interest rates theme that dominated for periods of 2023. Banks typically earn larger net interest margins when benchmark rates are higher. BPER Banca and Bankinter were both in the Fund’s top five contributors for the year.

Of the portfolio detractors, Bekaert was the largest. Shares in the Belgian steel-wire company lost ground after announcing lower-than-expected Q1 sales – a 14% decrease in consolidated sales compared to the same quarter the previous year.

Fugro, the specialist in geotechnical surveys, sank after a Q3 like-for-like revenue decline of 0.7% Q3 disappointed against expectations. While in Europe-Africa and Asia Pacific Fugro is experiencing demand strength across energy, infrastructure and marine markets, activity levels have been subdued in the Americas and Middle East, with geopolitical risks resulting in delays to a number of key oil & gas projects.Bytes Technology Group was another notable detractor. Early in the year its shares slid on governance concerns after its CEO resigned due to undisclosed trading in the company’s shares. It later downgraded its gross profit growth guidance to high single digits following a shift to high volume, lower margin software sales.

Portfolio Activity

Following the year’s annual review of company report and accounts, the Fund’s bias towards value and away from growth has been largely eliminated in favour of a more stylistically balanced approach.

From a style perspective, value stocks have re-rated from their extreme low levels in recent years but are not yet expensive. However, our indicators suggest a less compelling environment for value compared with prior years where investor nervousness was creating a significant opportunity in value stocks.

Meanwhile, stocks with high forecast growth style characteristics are no longer expensive but are also not compellingly cheap.

Outlook

We remain constructive on European equities, albeit this view is now tempered somewhat by a weaker technical trend. However, market valuation remains reasonable to moderately cheap and corporate mal-investment has again fallen further.

Our style preference remains in favour of momentum. Our momentum efficacy indicator continues to suggest strong returns from momentum both in Europe and the US. We continue to maintain balance in the portfolio, emphasising quality growth and recovering value stocks with positive momentum characteristics.

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

Past performance does not predict future returns

	Dec-24	Dec-23	Dec-22	Dec-21	Dec-20
Liontrust GF European Smaller Companies A3 Acc EUR	13.0%	7.0%	-17.3%	33.7%	7.4%
MSCI Europe Small Cap	5.7%	12.7%	-22.5%	23.8%	4.6%

	Dec-19	Dec-18
Liontrust GF European Smaller Companies A3 Acc EUR	35.8%	-19.9%
MSCI Europe Small Cap	31.4%	-15.9%

*Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested).
**Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested). Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio (01.02.17). Investment decisions should not be based on short-term performance.

The investment objective of the Fund is to achieve long term capital growth by investing primarily in European smaller companies. The Fund may invest in all economic sectors in all parts of the world, although it is intended it will invest primarily in equities and equity related derivatives (i.e. total return swaps, futures and embedded derivatives) in European companies (including the UK and Switzerland). The majority of the assets of the Fund (more than 85%) are expected to be invested in smaller companies (with a market capitalisation of less than 5 billion euros at the time of the initial investment). In normal conditions, the Fund will aim to hold a diversified portfolio, although at times the Investment Adviser may decide to hold a more concentrated portfolio, and it is possible that a substantial portion of the Fund could be invested in cash or cash equivalents. The Fund may use FX forwards to hedge the Fund’s currency exposures. The Fund has both Hedged and Unhedged share classes available. The Hedged share classes use forward foreign exchange contracts to protect returns in the base currency of the Fund.

5 years or more.

5 (Please refer to the Fund KIID for further detail on how this is calculated)

Active.

The Fund is considered to be actively managed in reference to MSCI Europe Small -Cap Index net total return (the “Benchmark”) by virtue of the fact that it seeks to outperform the Benchmark. However the Benchmark is not used to define the portfolio composition of the Fund and the Fund may be wholly invested in securities which are not constituents of the Benchmark.

Understand common financial words and terms See our glossary

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

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.
This Fund may have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the Fund's value than if it held a larger number of investments.
As the Fund is primarily exposed to smaller companies there may be liquidity constraints from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance
and could cause the fund to defer or suspend redemptions of its shares. In addition the spread between the price you buy and sell units 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.

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.

DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It 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.

This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, 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. 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.