Since 2019 markets have been extremely varied from one year to the next, making it especially challenging for funds to deliver consistent performance but in Europe one has proven particularly successful: the Liontrust European Growth fund.
Starting in 2019, the fund has made 24.6%, 20.1% and 24% in each calendar year, respectively. In 2022 it has lost 1.9%, but this is still a top quartile effort.
That it has managed returns placing it in the top 25% of its sector despite making a loss shows how difficult equity markets have been this year.
Source: FE Analytics
Over the entire period the fund has made 86.1%, beating the average IA Europe Excluding UK fund (39.3%) and the MSCI Europe ex UK benchmark (37.5%).
Performance of fund vs sector and index since 2019
Source: FE Analytics
An argument could be made that 2019 was the only normal year of the period, as it was pre-Covid. During the year, European elections were largely uneventful, although in the UK the success of the Conservative party and Boris Johnson brought about an optimism that the Brexit saga may finally end.
This state of ease was not to last long, however, as early reports of an unknown coronavirus in China started to trickle through, although it was not until March 2020 that events had spiralled into the first, global pandemic in a lifetime. The global lockdown response sent markets into free-fall and the sharpest bear market in history.
Technology stocks that provided solutions to problems posed by the pandemic, such as home working or teaching, surged while retailers and travel companies tanked.
This trend continued until the year when the first vaccine was announced and markets made an almost immediate shift into value and cyclical areas to take advantage of the recovery environment.
In 2021 both styles fought for dominance as investors flip-flopped between fear of further Covid strains and optimism of a recovery. This dynamic lasted until October, when inflation ran rampant, boosting traditional value stocks such as oil, miners and banks. Although the European Central Bank has yet to make interest rate hikes, it is expected to later this year.
However, interest rates and inflation has not been the only European story this year, as the first war in Europe in generations broke out when Russia attacked Ukraine. This invasion caused turmoil in markets once again, sending energy prices up and worsening pre-existing supply chain issues.
Looking at how the Liontrust European Growth fund navigated this backdrop, a key reason for its consistent outperformance was the managers’ ability to adapt the investment process to the market outlook in each year, according to experts.
Ryan Hughes, head of active portfolios at AJ Bell, said one of the reasons the fund maintained its returns was that managers James Inglis-Jones and Samantha Gleave “impressively rotated the portfolio from growth to core to value over the past three years, capturing the shift in market sentiment very well”.
Indeed, the fund’s top three sector exposures are traditionally ‘value’: industrials, followed by materials and financials, which combined made up over 55% of the total allocation. By contrast, information and technology make up just under 5%.
This change was a gradual evolution, according to Square Mile Consulting and Research, although the analysts added that it remained “focused on completely objective measures of companies well-being”.
Indeed, in May 2019 the fund had 16.3% in technology and telecoms, with the three value sectors making up around 40% of the overall portfolio.
Hughes said that the Liontrust European Growth fund’s process has always been built around companies with a strong cash flow, businesses that were cheaper than the market but were also “generating superior returns on capital”.
Amaya Assan, head of fund origination at Square Mile Investment Consulting and Research, said that this approach can take time, as it may take years for the market to reprice a stock.
However, she said that the fund’s longer-term performance was “excellent” and “suggestive that the managers are identifying anomalously priced securities”.
“We think the fund makes a fine diversifying offering to one's repertoire of European funds,” she added,
Some of the stocks in the fund’s top 10 include: Dutch semiconductor company, ASML Holdings, German chemical company, K+S AG and French pharmaceutical company Ipsen, which specialises in oncology and rare diseases treatment.
The fund holds an FE fundinfo Crown rating of four and has an ongoing charges figure of 0.88%.