LIONTRUST GLOBAL FUNDS plc Liontrust GF European Strategic Equity Fund Investment Adviser’s R eport For the six months ended 30 June 2021 Market Review The Sub-Fund’s Class A4 returned 15% in euro terms in the six months to 30 June 2021. The Sub-Fund’s comparator benchmarks, the MSCI Europe Index and HFRX Equity Hedge EUR Index, returned 15% and 7.4% respectively. The fight against coronavirus ramped up significantly in 2021 as the global roll-out of vaccines provided encouragement that an end to the pandemic could be in sight. The pace of vaccination initially varied: Israel and the UK were among the global leaders of the vaccine efforts, but slow approvals and supply issues meant European countries such as Germany and France saw a slower roll-out. Nevertheless, by the end of the review period, the vaccine effort was well underway in most European countries. This allowed restrictions to begin easing, despite concerns about the Delta variant of coronavirus, and investor focus turned to the economic recovery. The European Commission upgraded its 2021 economic growth forecast for the euro area to 4.3% from 3.8% while the Bank of England upgraded its UK estimate to 7.25% from 5%. Inflation was on the rise too though: in the US, a 5% year-on-year increase in the consumer price index (CPI) for May was more than expected, and prompted further discussion around the removal of current ultra-accommodative monetary policy, in the US and worldwide. In June, the Federal Open Market Committee’s (FOMC) dot plot of members’ future interest rate expectations indicated that rates are forecast to start rising in 2023, having previously been predicted to remain constant until 2024. Economic projections were optimistic, with the median estimate of gross domestic product (GDP) growth revised up to 7% for 2021 versus 6.5% in March, while core inflation is forecast to be 3% vs 2.2%. Analysis of Portfolio Return Bond yields rose during the first half of the review period. Rising bond yields have a significant impact on the valuations of growth stocks which by definition are long-duration assets: valuation models for growth stocks are very sensitive to a rising discount rate for their future assumed high growth. Value stocks by contrast are short duration, profits for which are much more likely to benefit from a pick-up in inflation owing to the beneficial effects of inflation on pricing power. The Sub-Fund has a value tilt and benefitted from the style’s outperformance during the majority of the review period. In the five months to end May 2021, the MSCI Europe Value Index returned 14% in euro terms versus the MSCI Europe Growth Index’s 12% return. However, market leadership changed in the second quarter with the rotation particularly sharp in June, with Growth outperforming Value by 3.4 percentage points. This meant that for the six months to 30 June 2021, the MSCI Europe Value Index’s return stayed at 14%, while the MSCI Europe Growth Index returned 16%. Having peaked at the end of March at close to 80%, the Sub-Fund’s net exposure by the end of June was reduced to 54% due to our outlook for markets becoming more cautious. The Sub-Fund’s performance kept pace with a rising market despite net market exposure running at average of 62% over the period. This was the result of good stock selection returns in the long book. The short book detracted from overall performance, but there was a significant positive spread between the total return of the short book and the long book so the shorts played an important hedging role during the period under review. Liontrust Global Funds plc 2 Interim Report and Unaudited Financial Statements LIONTRUST GLOBAL FUNDS plc Liontrust GF European Strategic Equit y Fund Investment Adviser’s R eport (Continued) Analysis of Portfolio Return (continued) Within the portfolio’s long book, the best performing positions were Codan, Capital One Financial Corp and Aggreko: - Australia-based Codan reported a record half-year profit of A$41.3m in the six months to 31 December 2021. The main driver of the strong performance was the company’s metal detection business – Minelab – which saw significant growth across gold and recreational markets, resulting in a 55% increase in sales. - Capital One Financial reported first quarter earnings that trumped analyst estimates. The US credit card and auto loans company said diluted net income per share was US$7.03, coming in well ahead of the market forecast of US$4.13. Founder and CEO Richard Fairbank said the performance was driven by “strikingly strong credit”, while investments in technology were paying off. - Temporary power company Aggreko’s shares rose after agreeing to a takeover offer from TDR Capital and I Squared Capital of 880p per share. The price represented a 39% premium to Aggreko’s shares at the time. The weakest positions in the long book included BW Offshore, SimCorp and Knowit: - BW Offshore saw its share price slide despite issuing robust first quarter results. EBITDA (earnings before interest, taxes, depreciation and amortisation) grew 21% from Q4 2020 and operating revenue was US$219m, coming in ahead of the consensus estimate of US$185m. - SimCorp’s shares fell following the release of its 2020 results. The investment software provider said order intake increased 16% year-on- year aided by 17 new client wins, but revenue remained flat at €456m and below consensus forecasts of €460m. For 2021, revenue is expected to grow between 6% and 11%. Its first quarter results were more promising with revenue rising 6.9% and EBIT (earnings before interest and taxes) increasing 37%, both ahead of market expectations. - Knowit issued new shares at a discount of c.4%, raising SKr500m. The proceeds will be used for proactive reasons as the digital consultancy bolsters financial flexibility to take advantage of future business opportunities in line with its growth plans. Within the short book, the largest detractor was a space flight company whose shares soared after receiving regulatory approval for passenger flights to space. Another detractor was a bioconvergence company whose share price was boosted by strong 2020 results which showed net sales quadrupling and a return to profit. Portfolio Activity During the period under review trading activity is usually seasonally high owing to our annual review. Whilst the usual rates of turnover were sustained in the short book (involving usually a handful of trades each month in a short book numbering in excess of 100 stocks), the trading activity in the long book was depressed relative to history. The reason for this was the scale of the trade into contrarian value positions in 2020. A high proportion of the contrarian names we purchased in 2020 evolved over the year to take on momentum characteristics and we saw our secondary scores migrate from ‘Contrarian’ to ‘Growth’ and ‘Recovering Value’. Owing to the collapse in investor anxiety we changed the emphasis of our stock selection from ‘Contrarian’ to an emphasis on the three other secondary scores we use to select stocks in the best quintile of cashflow: Cash Return, Recovering Value and Growth. In the long book we sold out of only three positions during the review period – Adidas, Recordati and Roche. We purchased five positions with the proceeds of our sales – ABB, Daimler, K+S AG, Randstad and Rexel. Outlook Many of the trends we commented upon in the last review have accelerated in the past few months – markets have become more expensive and corporate aggression has continued to climb. Looking at corporate aggression in a longer-term context, our measure now sits just over one standard deviation above average whereas at the peak of the tech bubble and in the months preceding the financial crisis in 2007, our measure hit levels above two standard deviations. Whilst expensive valuations tend not to get in the way of a strong uptrend in markets, high corporate aggression can – by contrast – be a good leading indicator of weakness. We continue therefore to monitor this closely. There remains a significant dislocation between the valuation of growth and value stocks, with the former trading on very high levels whilst the latter remains historically depressed despite the strong run in the six months to May 2021. Value stocks have barely begun to repair their extreme discount whilst many growth stocks look in bubble territory. A recent decline in long-term treasury yields and a sense of scepticism regarding the economic recovery has buoyed growth stocks further of late, but we continue to believe they remain vulnerable whilst value cyclical stocks have significant potential for further recovery. Liontrust Global Funds plc 3 Interim Report and Unaudited Financial Statements LIONTRUST GLOBAL FUNDS plc Liontrust GF European Strategic Equit y Fund Investment Adviser’s R eport (Continued) Outlook (continued) We believe that in the next 12 months there could be a significant return to our process on the short side. Whilst the climb in corporate aggression is portentous of a good general short book return to come, we have also noted extreme dislocations in the valuations of stocks identified by our secondary scores – particularly Recovering Value and Growth. The dislocation points to stocks scoring well on these secondary scores looking unusually cheap relative to history but even more striking are the exorbitant valuations of stocks scoring badly. Historically this is a set up for strong returns on the short side. Liontrust Investmen t Partners LLP July 2021 Past performance is not a guide to future performance. Investments can result in total loss of capital.