Type: Unit trust
Aim: Growth by investing in European companies including the UK
Minimum investment: Lump sum, £2,500 or £1,000 through Isa or Pep
transfers, monthly £50
Investment split; 100% in European companies including the UK
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7412 1766
Liontrust has launched the continental Europe fund, a unit trust that will invest in a concentrated portfolio of companies with strong cash flows that the managers believe are likely to beat investors’ profit expectations.
Hargreaves Lansdown senior analyst Meera Patel points out that this is Liontrust’s first foray into European equities. “I feel European equities are overlooked by UK retail investors and unfairly so as these funds can have some good growth potential and can also form a diversifier in an overall portfolio,” she says.
In Patel’s view, this fund offers an excellent way to gain exposure to the European market with two experienced and highly regarded managers at the helm who built a decent track record for themselves at JPMorgan. “They will be applying a newly created process which focuses on cash flow and exploiting the inaccuracies of profit forecasting by people. There is therefore a behavioural aspect to the process with the aim to avoid the mistakes other people make when forecasting. On the face of it, it seems perfectly sensible and may just prove to be effective,” she says.
Patel notes that one of the advantages of working for a company like Liontrust is that they adopt a small boutique type culture. She likes the fact that Liontrust will let the managers get on with running the fund without the unnecessary red tape often associated with larger companies and this in itself makes this an attractive proposition in her view.
“I like the fact that this will be a concentrated fund of 30-50 stocks. This suggests the managers will back each company with their highest level of conviction. The managers also have flexibility with no restrictions at the geographical level and in terms of sectors. This means that they are not bound by rigid rules and the key aim is to deliver the very best performance possible for investors,” says Patel.
The managers will also adopt a buy and hold strategy. “They do not wish to be traders, which means the turnover in the fund is likely to be low thus keeping the costs in the fund low. Finally, the managers are tied to the company through substantial equity stakes so I feel confident that they are well incentivised to perform and it is unlikely they will join the fund manager merry go round in the near future,” says Patel.
Overall, Patel thinks this makes a good proposition for investors as they have access to some good fund mangers and a company that seems committed to making a success of his fund. However, she does have a few reservations about the fund.
“My main concern is that this is a new process and while it has been back tested showing encouraging results, we have yet to see how it will work in practice. Admittedly, there are a few similarities in the process they used at JPMorgan, which did work, but they have enhanced it and the proof will be in the pudding.
“With this new process, the managers will not meet companies. They believe this will avoid subjective biases. They also feel that management’s decisions cannot be seen by meeting them but are in fact reflected in the company accounts. This seems perfectly fine. However, there is a risk of missing out on certain types of information such as future plans for the business and therefore its growth potential going forward which cannot always be reflected in the accounts. “ She thinks this is something to bear in mind but not necessarily a complete disadvantage as not meeting management has worked for other funds.
Identifying the main competition, Patel highlights Artemis European growth, JPM European dynamic, Argonaut European and Neptune European.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average