The Fund lagged in a market dominated by value stocks and AI-driven concentration, but the managers remain confident. Strong sustainability-focused businesses, attractive small and mid-cap valuations and standout performers like ASML support the long-term outlook, with portfolio resilience reinforced by engagement progress and selective additions to high-quality holdings.
Martyn: The Liontrust Sustainable Future European Growth Fund fell 2.9% in Q3. This is compared to a 4.8% gain for the MSCI Europe ex-UK index. We recognise that this performance is disappointing. However, even though our companies are currently out of favour with the market, we can see the value they are quietly building. We are confident that in time, the value will be recognised and rewarded. The market backdrop for this performance is one of concentration, with the US index narrowly driven by mega-cap AI stocks and European markets dominated by value-orientated companies. This environment has posed a particular challenge for our investment process. Quality and growth companies where we focus have lagged. Indeed, the rotation away from quality and growth towards value has been a defining feature of markets since the start of the rate-hiking cycle in 2022.
Our approach is rooted in seeking out companies with strong sustainability credentials, attractive returns on capital, and long-term growth opportunities. We simply do not see these quality characteristics in most banks, defence, and utility companies that are currently in vogue. Higher interest rates have also weighed on the valuation of small and mid-sized companies, SMID caps, where we are overweight. Despite the recent underperformance, SMID caps have historically significantly outperformed large caps over the long-term, compounding sales and profits at a much higher rate. Today, they trade at a significant discount to large caps, offering very attractive return potential, and we are well positioned for their recovery.
If we look more closely at the portfolio, ASML, a global leader in semiconductor manufacturing equipment, was the standout performer, up 25% on AI enthusiasm. We've held ASML for over 10 years and remain confident in the company's long-term prospects.
Lifco, our Swedish diversified industrial, was the main detractor down 14% due to margin pressure and slower growth. But since then, shares have rebounded after a positive Q3 update. Over our four-year holding period, we have seen many of these share price gyrations underlining the value of patience in this exceptional company. We're also encouraged by Lifco's recent science-based target carbon reduction commitment following our engagement on this issue.
CTS Eventim, Europe's largest live events ticketing company was another notable detractor, down 19% after acquisition integration costs. As Europe's dominant ticketing provider in a growing market, we remain confident in the company's prospects and we have added to our holding, which we started three years ago.
While the quarter was tough, we believe the Fund is very well positioned for the long term. Our focus remains on innovative businesses addressing major social and environmental challenges, and we see strong long-term potential as the market leadership broadens and the market once again rewards high quality companies.
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.
- 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 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.
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.com 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.
