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Jan Luthman, Macro-thematic: Shift in investor perceptions of the pharma industry is gathering pace

Our view that there is still significant value within the pharmaceuticals sector was nicely encapsulated by Merck’s announcement earlier this month of a $15bn share buyback programme. The value on offer from the equity market relative to bonds, following the multi-decade fixed interest bull market, is one of the key reasons behind our asset management theme. It also offers companies such as Merck the opportunity to borrow cheaply and reinvest in higher-returning assets which, in the case of share buyback programmes, are the companies’ own shares.

Merck’s programme will be funded through the issue of a range of bonds with a variety of maturities and coupons ranging from 0.7% to 4.15% (and some floating rate). The company’s guidance for 2013 earnings per share is $3.50, which represents an earnings yield of about 7.4% at its current share price of $46.9. Importantly, the interest on debt can be repaid out of pre-tax earnings. So, in effect, Merck is borrowing money at a tax-deductible rate of interest which is about half the after-tax earnings yield on the shares they will be buying.

Mark Williams, Asia: Why we are still positive on China

The significant recent sell-off of Asian assets appears to have been sparked by two important data points: China’s HSBC Flash manufacturing purchasing managers’ index (PMI) which, at 49.6, indicates that economic growth is decelerating; and Ben Bernanke suggesting that the Federal Reserve might consider reducing its asset purchases associated with quantitative easing. While the latter must occur at some point, and seems unlikely to happen without the associated positive that the United States economy would be truly healing, the former is a more obvious concern for our portfolio and deserves some attention.

Carolyn Chan, Asia: Focus on the Philippines

The Philippine market has been the best performing in 2013, rising 25% in US dollar terms. Mid-term elections were held on the 13th of May, and as expected the results support a strong Aquino (the incumbent President) mandate, with Aquino’s coalition winning a majority in the Lower House and nine out of the 12 available Senate positions. This was ahead of the market’s expectations for seven Senate seats and brings Aquino’s total to 15 out of 24 Senate seats, which will help reform momentum.  

Liontrust Dealer's Blog - 03/05/2013

“He who wishes to be obeyed must know how to command.” Niccolo Machiavelli, Italian historian and politician, May 3rd 1469 - June 21st 1527



  • The US market closed marginally higher than where we left it yesterday
  • Treasuries ended little changed, whilst the VIX gave up ground
  • Facebook strong (+5.6%) on a revenue beat and General Motors up (+3.3%) for a similar reason
  • Asia traded mostly better taking their lead from Chinese financials which rose on hopes for an interest rate cut/liberalisation
  • Interest rate cut of 25bps as expected in India, with the Royal Bank of India saying that inflation leaves “little space” for further easing
  • Japanese market closed for a public holiday (and is also closed on Monday)
  • The Euro rose sharply pre market on comments from ECB member Nowotny that there is no specific plan on negative deposit rates
  • Peripheral yields continue to tighten with the Italian 2 year below 1% for the first time and the Spanish 10 year below 4% for the first time since October 2010
  • Commodities generally stronger, helped the speculation on a possible Chinese rate cut....
  • ....which spurs the miners and metals to lead markets higher across Europe first thing
  • Having opened up small, European markets retreat on news that the EU has, once again, cut economic growth forecasts for 2013....
  • ....to -0.4% from -0.3%, with France now expected to see a contraction of 0.1%, rather than growth of 0.1% the standout feature
  • UK services PMI comes in stronger than forecast (52.9 vs expected 52.4)
  • Today’s UKIPs: Vallourec (%), CGS Veritas (%), Man Group (%), Sky Deutschland  (%),
  • Today’s main parties: RBS (%), Telenet (%), Air France (%), Hugo Boss (%)
  • The major macro event of the day was the US April non-farm payrolls number, which came in comfortably ahead of expectations....
  • ....with a significant upgrade to last month’s number to boot, all of which saw the unemployment rate fall to 7.5% (see below)
  • The immediate reaction of risk assets was to bounce sharply (FTSE rose by 30 points in 3 minutes)....
  • ....and the $ also rose sharply (appreciated by 1c in 3 minutes against the Euro)
  • ....and all the above sparked a further move up (they were already trading strongly) in the miners and, to a lesser extent, the financials
  • The S&P burst through the 1,600 level and the Dow Jones closed in on the 15,000 level...
  • ...but a little of the wind came out of the sales with the release of very weak factory order numbers for March and a slightly disappointing non-manufacturing ISM number
  • Nonetheless equities pressed on and the Dow did indeed break the 15,000 level for the first time....
  • ....and 10 year bond yields climbed by more than 10bps, whilst the VIX tumbled by 5.5%
  • FTSE ended the week up by 0.94%, whilst the remainder of Europe was up by rather more, with the Dax Index in Germany also hitting a new all-time high
  • Today’s UKIPs: Vallourec (+12.3%), CGS Veritas (+12.2%), Man Group (+12.9%), Sky Deutschland  (+7.5%),
  • Today’s main parties: RBS (-5.7%), Telenet (-14.2%), Air France (-4.5%), Hugo Boss (-6.1%)
  • Meanwhile the S&P was up by 1.15% as we headed off to dust down the barbecue and try to find our flip-flops....have a splendid long weekend!

Liontrust Dealer's Blog - 02/05/2013



  • The US lost ground after our close last night on decent volume post the disappointing ADP employment data
  • Oil stocks and commodities led the fall as the FOMC maintained QE at current levels, but indicated that they could increase or decrease the asset purchase program depending on the macro environment (see below)
  • Treasury bonds rose (10 year yield fell by 4bps) and the VIX closed higher by 7.5%
  • Asian markets all open again post Golden week holidays and generally move lower
  • Chinese April PMI came in shy of estimates at 50.6 with underlying indicators pointed to a slowdown
  • The Chinese Premier has requested a study on lowering the growth target for next year from 7.5% to 7%
  • European markets open lower post the May Day holiday, with industrials and miners leading the falls
  • UK construction PMI rose by 2.2%, a much larger rise than had been expected
  • Final Eurozone manufacturing PMI for April  confirmed contraction, although not by as much as originally indicated
  • Latest French bond auction passed off fine....bid-to-cover 2.33x and with a 10 year yield at a record low
  • A mixed bag of European earnings across Europe today, but not good for holders of stocks beginning with “S”....
  • ....with misses from Sanofi, Siemens, Statoil, Swisscom and Shire
  • Today’s Bayern Munichs: Infineon (+9.9%), CapGemini (+7.7%), Hugo Boss (+5.0%), Glencore (+5.4%)
  • Today’s Barcelonas: Imagination Tech (-25.7%), Andrittz (-14.9%), Inmarsat (-7.7%), Shire (-6.7%)
  • The major event of the day was the ECB’s decision to cut interest rates by 25bps (see below)....
  • Initial equity market reaction was to rise, but it did not last for long
  • ....with rhetoric from Draghi in the subsequent press conference heavily skewed to the dovish tack being blamed....
  • ....and his comments were also behind the Euro sliding by almost 1% against the $
  • The latest initial jobless claims data from the US saw a new post recession low....
  • ....and the weekly consumer comfort index rose to a five year high....
  • ....and the trade deficit also saw an unexpectedly large decline....
  • ....all of which persuaded Goldman Sachs to up their Q2 GDP tracking estimate (see below)
  • ....and helped markets to rally over the course of the afternoon
  • Base metal prices continued to slide, although precious metals (notably gold and silver) rallied
  • FTSE ended the day higher by 0.15%, whilst Europe was a mixed bag, led Germany (+0.6%) and the peripherals lower
  • Meanwhile the S&P was trading higher by more than 0.8% on the back of the raft of encouraging macro data


Any opinions expressed should not be construed as advice for investment in any [product or] security mentioned or which may form the underlying content of any topics discussed in this blog.  The information and opinions provided in this blog take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision.   Any opinions or information provided has been based on sources we believe to be reliable at the time of this blog’s preparation: no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.  Neither Liontrust, nor any of its partners, employees, representatives or agents accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of our research or its contents.

Liontrust, its partners and/or employees may have had, have or will have positions in the securities (or related financial instruments) which are those referred to, or those underlying the content discussed in this blog.

Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a regulated investment advisor or licensed stock broker before investing.

Shares in companies referred to may be relatively illiquid and hard to trade, therefore riskier than other investments and there could be a large bid/offer spread, so if you need to sell soon after you’ve bought, you might get less back than you paid. This can make them riskier than other investments.