This fund’s focus on companies’ historic cashflows has helped it deliver consistent top quartile performance
Thursday 23 Jun 2022 Author: James Crux

European markets are under pressure right now and with good reason as the European Central Bank gets more hawkish in the face of mounting inflation and as growth slows.

However, we think there are opportunities for good stock-pickers to take advantage of share price weakness and Liontrust European Growth (B4ZM1M7) – which has a strong process and proven pedigree – looks ideally placed.

Managed since its late 2006 launch by James Inglis-Jones, who was joined by Samantha Gleave in 2012, the fund is concentrated around the managers’ best ideas.

This comprises 32 names at last count, and has been positioned more defensively of late with a focus on attractive valuations.

Liontrust European Growth’s stated aim is to deliver capital growth over the long term, meaning five years or more, by using asset manager Liontrust’s tried-and-tested ‘Cashflow Solution’ process to identify winning investments.

Put simply, Inglis-Jones and Gleave seek to own companies that generate significantly more cash than they need to sustain their planned growth yet are lowly valued on that measure and run by management teams committed to an intelligent use of capital. The Liontrust managers screen for two cash flow ratios in particular; cash flow relative to operating assets, and cash flow relative to market value.

HUNTING FOR CASH FLOW

The £387.2 million vehicle’s success is reflected in a top quartile ranking over one, three, five and 10 years and the fund is top quartile year-to-date too. On a 10-year cumulative performance basis, Liontrust European Growth has returned 222.7%, dramatically outpacing the 148.5% from the IA Europe Ex UK index and the 141.7% generated by the MSCI Europe ex UK index, thanks to its focus on companies’ historic cash flows.

As at the end of May, the portfolio’s biggest sector exposures were those with a value tilt such as industrials, materials and financials followed by consumer discretionary and healthcare, a spread that also gives investors access to a diverse batch of cash generative names.

Among the top 10 holdings are the likes of German fertiliser supplier K+S (SDF:ETR), a recent beneficiary of surging potash and other agricultural commodity prices in the wake of Russia’s invasion of Ukraine, as well as Dutch microchip tech firm ASML (ASML:AMS), Denmark-headquartered pharmaceutical name Novo Nordisk (CPH:NOVO-B) and French military aircraft-to-business jets maker Dassault Aviation (AM:EPA).

Another holding is Swedish Match (SWMA:STO), the tobacco company famed for its Zyn nicotine pouches.

This was added to the portfolio just before the shares puffed higher after Swedish Match agreed to a SEK106 per share cash offer from tobacco titan  Philip Morris (PM:NYSE).


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