PERFORMANCE COMMENT
Since we last updated the strategy on 28 June 2024, incorporating new risk parameters, LO Funds–Europe High Conviction has returned -2.4% vs -1.0% for its benchmark (MSCI Europe) on the P class, while N class shares have returned -2.1% vs -1.0% for the benchmark.
Over the period, the top three best performing positions minus the bottom three had an impact of -7 bps on performance (gross). By sector, the two best contributors to relative performance were Financials (+31 bps) and Materials (+28 bps), while the two top detractors were Industrials (-81 bps) and Consumer Staples (-67 bps).
The Fund is well positioned to offer broad exposure across sectors and underlying drivers. Over time, the construction of the portfolio should allow for the delivery of our objectives: solid alpha generation from high-conviction positions based on proprietary, fundamental analysis, coupled with strict risk management to protect from sizeable relative drawdowns.
October 2024:
The Fund returned -3.8% net of fees (EUR P share class) in October versus -3.3% for its benchmark, bringing its year-to-date performance to -4.5% versus 8.0% for the benchmark. N class shares returned -3.7% in October and -3.8% YTD versus -3.3% and 8.0% for its benchmark, respectively.
The Fund’s performance in October was driven mostly by stock selection, with a small negative impact from market factors. Our top three positions minus our bottom three positions had a net -22 bps impact last month – half of our (gross) relative performance.
The best-performing sectors in the benchmark were Energy (+0.2%) – the only positive sector during the month – and Financials (-0.6%), while the bottom performers were Real Estate (-7.3%) and Information Technology (-7.2%). The sector with the most significant impact on the Fund’s performance was Healthcare, which was more impacted by negative stock selection.
STOCK PERFORMANCE: TOP CONTRIBUTORS AND DETRACTORS
CONTRIBUTORS
The top three contributors to the Fund’s performance in October were Trainline, Elis and SAP.
Trainline: Trainline, the European leading independent rail platform, updated its full-year 2025 guidance (fiscal year closing end of February) after a strong first half in terms of sales. The stock was up 16.4% in October.
Elis: The French provider of linen and workwear cleaning and rental services announced during the month that it had terminated all discussions with Vestis and Unifirst around a potential acquisition. This news came as a relief to investors who were concerned about the impact of a deal on Elis’ leverage and EPS in coming years. The stock was up 11%.
SAP: The enterprise software company raised its 2024 outlook for revenues, operating profit and cash flow after a strong performance from cloud revenues. The stock was up 5.1%.
DETRACTORS
The three positions that detracted most from the Fund’s performance last month were Eurofins Scientific, Spirax and Dassault Systemes.
Eurofins Scientific: The laboratory testing services company issued below-consensus Q3 results and revised its top-line full-year guidance due to the biopharma business lines facing a slowdown in early-stage clinical activity and a decline in the agri-food business. The stock was down 20.6% in October.
Spirax: During its capital markets day, the manufacturer of steam and fluid management solutions highlighted continued short-term uncertainties in the steam and biopharma businesses and an operating margin improvement that could be back-end loaded. The stock was down 14.8%.
Dassault Systemes: The engineering software company reported license sales in line, while subscription revenues disappointed due to automobile deals being postponed. It updated total revenue growth guidance for the full year 2024 from 6-8% to 5-7% to reflect the contraction of the automotive market. The stock was down 11.7%.