Liontrust Sustainable Future European Growth Fund

Key takeaways

• European equities had a strong fourth quarter, helped by easing trade tensions and a gradually more supportive policy backdrop.
• Fund performance was led by Technoprobe, benefiting from AI-driven semiconductor demand and strong Q3 results, while Nagarro and Vestas also contributed following positive updates and improved sentiment.
• Markets have favoured lower-growth large caps, but we remain focused on long-term profit growth from structurally advantaged companies, offering re-rating potential and attractive long-term returns.

Performance

The Fund returned 5.6% over the quarter, compared with the 6.1% return from the MSCI Europe ex-UK Index and the 4.9% IA Europe ex-UK sector average (both of which are comparator benchmarks)*.

Commentary

European equities had a strong fourth quarter, helped by easing trade tensions and a gradually more supportive policy backdrop.

Markets rallied early in the period after a one-year US–China trade deal reduced the perceived risk of disruptive tariffs and export controls, while the Federal Reserve’s second rate cut of the year further supported risk appetite. Sentiment turned more volatile in November as investors reassessed stretched valuations in AI-linked technology, leading to sharper swings and narrower, more selective market leadership. Equities finished the quarter on a firmer footing in December as macro confidence improved and policymakers signalled greater stability heading into 2026: the ECB left rates unchanged as inflation cooled and growth remained fragile, while the Fed delivered a quarter-point cut but adopted a more cautious stance on additional easing – leaving expectations finely balanced entering 2026.

With regards to Fund performance, Technoprobe (+46%) was the top contributor after a strong third-quarter update, with AI-driven demand lifting results and more than offsetting softer trends in automotive and industrial end-markets. The market response reflected growing confidence that Technoprobe is leveraged to the most resilient, higher-growth areas of the semiconductor cycle.

Held under our Better monitoring of supply chains and quality control theme, Technoprobe is the pioneer behind the semiconductor probe card. Its probe cards are used to identify faulty semiconductors early in the manufacturing process, helping leading fabs such as TSMC reduce resource waste and avoid unnecessary costs before chips reach the packaging stage.

German IT service provider Nagarro (+47%) reported a solid Q3, delivering higher revenue and profits and reiterating its full-year guidance. Alongside the operational update, the company announced shareholder-friendly capital actions: it plans to reduce share capital by cancelling treasury shares, and the board approved a share buyback programme of up to €20 million. The combination of steady execution and capital returns was well received by the market, supporting a strong share price reaction.

Vestas Wind Systems (+45%) continued its strong performance into Q4, supported by improving policy sentiment and company-specific momentum. Wind-energy companies have been volatile amid renewed US political efforts to slow offshore wind development, but sentiment improved after a US federal judge ruled President Donald Trump’s ban on new wind projects illegal, easing a key overhang and supporting a rebound in names with US exposure.

Vestas also reinforced confidence through shareholder returns and order strength. The company announced a share buyback of up to DKK 1,120 million, signalling balance sheet strength and management conviction in the turnaround. A strong onshore orderbook underpinned the message, with onshore orders up more than 60% year-on-year, improving visibility after recent supply-chain and cost pressures. Guidance was modestly tightened to €18.5–€19.5 billion (from €18–€20 billion).

Financials again contributed meaningfully to benchmark returns over the quarter. While the Fund has some exposure, we remain underweight versus the benchmark. European banks have performed strongly over both the year and the quarter, with the market favouring institutions showing the biggest earnings upgrades as “higher-for-longer” interest rates support net interest income. As noted in previous quarterly commentaries, we hold three banks that we view as best-in-class in terms of earnings durability and balance sheet strength. Given our typically long holding periods in the sector (often 10+ years), we prefer owning the highest-quality franchises rather than chasing shorter-term momentum.

Leading the Fund detractors, Spotify’s (-17%) shares fell despite a solid Q3 beat, as fourth-quarter guidance disappointed. The Swedish audio platform reported €4.3 billion of revenue (+12% YoY), ahead of consensus, while monthly active users rose to 713 million, also above expectations. However, Spotify guided to €4.5 billion of Q4 revenue, below forecasts, citing currency headwinds. Investor sentiment was further weighed by ongoing pressure on content costs, with recent renewals of major label licensing agreements adding to the expense base.

Shares in UK private equity firm 3i Group (-19%) fell after it reported slowing growth at discount retailer Action. In its interim results, 3i noted that Action’s sales momentum softened in October, with France — which accounts for roughly a third of revenues — showing particular weakness. The company cautioned that Action’s full-year like-for-like sales growth may come in below its previous 6.1% guidance.

Trade activity

We made a number of portfolio changes over Q4. With regards to buys, we added Deutsche Börse Group (DBG) under our Enabling transparency in financial markets theme. DBG is a leading provider of market infrastructure, operating platforms for trading, clearing, settlement and custody across multiple asset classes, including digital assets. Its services are central to transparent and efficient capital markets, supporting stability, risk management and capital allocation. DBG is well placed to benefit from continued market electronification and demand for resilient, trusted financial infrastructure.

We added Schneider Electric under our Improving the efficiency of energy use theme. The company provides products and services that help customers manage electricity on the demand side—monitoring, controlling and optimising energy use once it reaches the end user. It holds leading global positions in energy management and industrial automation, and is positioned to benefit from structural growth in electrification and increasing demand for energy efficiency across data centres, buildings, industry and infrastructure.

Last, we added Straumann under our Enabling healthier lifestyles theme. Straumann is a premium implant market leader with a quality-driven brand, and has expanded into value implant segments via additional brands. It also provides digital dentistry tools (intraoral scanners, milling equipment and software) that support more efficient dental workflows. Its implants address tooth loss with a long-lasting option that better preserves oral health than many alternatives.

In terms of sales, we exited Ambu due to a loss of conviction relative to higher-quality alternatives in the healthcare space. While the company benefits from strong thematic tailwinds and innovation in single-use endoscopy, market conversion has been slower than anticipated, with growth proving lumpy and competitive pressures increasing. In terms of competition for capital, we believe Straumann offers better risk-reward, with a more dominant market position within oral healthcare, a more profitable business, and an attractive valuation.

The decision to sell our small position in HelloFresh was driven by concerns over the sustainability of its business model and repeated profit warnings. Despite efforts to pivot towards ready-to-eat offerings and improve margins, growth visibility remains low, and the company faces structural challenges in customer retention and market saturation. Additionally, the departure of the long-term CFO, whom we greatly admired for financial discipline and strategic clarity, further reduced our confidence in the company’s ability to navigate these challenges. With a difficult consumer backdrop and heightened operational risk, we concluded that capital would be better allocated to higher-conviction and lower risk opportunities.

We exited our long-term holding Infineon Technologies due to concerns over its heavy reliance on European automotive customers, a segment facing long-term structural challenges from cheaper alternatives, particularly low-cost Chinese EVs. In addition, we believe that increasing competition from Chinese semiconductor players could erode Infineon’s growth prospects and profitability over time. While the company remains strong in power semiconductors and AI-related applications, these risks significantly weaken its long-term investment case, prompting us to reallocate capital to opportunities with more resilient competitive positions.

Outlook

2025 was another year in which large‑cap companies with lower growth and lower valuations outperformed—continuing the market trend that has been in place since interest rates began to rise in 2022 amid post‑Covid inflationary pressures. In the near term, changes in valuation multiples are the dominant driver of share‑price performance; over the long term, however, it is profit growth that ultimately determines returns.

Our focus remains firmly on long‑term profit growth. We believe the most effective way to identify businesses capable of delivering this is to look for companies harnessing powerful structural growth tailwinds toward a cleaner, healthier and safer economy. These businesses are currently out of favour with the market, but after three years of muted share‑price performance, they now offer both the potential for a valuation re‑rating in the near term and meaningful profit‑growth opportunity over the long term.

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