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Samantha Gleave, Cashflow Solution: Income Fund doubles international exposure

The Income Fund’s geographical remit was expanded in July, allowing us to exceed the 20% limit on non-UK equities to which we had previously adhered. We have since grown the Fund’s international exposure to 40%.  Over half of this exposure (22% of the Fund) is invested in European companies and we anticipate this geographic bias remaining while the UK and Europe continue to provide the best value income opportunities. Our analysis of global corporate cash flows shows a cash flow yield of 5.1% for developed Europe, which compares with 4.3% for North America. European markets are currently trading on a cyclically adjusted price/earnings ratio of close to 15, compared to almost 24 for the US. Our proprietary cash flow screens also indicate that European companies are acting prudently in their use of cash, which is encouraging for income investors. Companies in this region are not over-investing in their businesses, and the number growing in an uncontrolled or over-optimistic manner remains very low.

John Husselbee, Multi-Asset: I do care what the weatherman says!

John Husselbee: Do you see what I see?
The North Atlantic surf pounds the beach daily at Praia Lacacao, the holiday resort located on the south western coast of Boa Vista in Cape Verde. A red flag is a signal that warns guests of the strong tidal waves and that water sports are strictly forbidden. The lifeguard can't tell me when exactly the green flag was last raised, nor does he care to predict the next time! On holiday, I much prefer to seek the shade and read a book or two. For those who know me well, they know of my preference to read fact over fiction, mostly investment related. A recent choice was 'The Signal and the Noise,' written by Nate Silver which addresses the art and science of prediction, a very relevant topic to all in the investment management industry. The book looks at the success and failure of prediction by examples from the natural and social sciences as well as what can be learnt from sports and games.

Mark Williams, Asia: What China’s 3rd Plenum tells us about the economic transition

Yesterday’s much-anticipated statement from China’s Central Committee was light on concrete details and slightly oblique in its language in some areas. However, given the enormity of the task list facing the Chinese government as the country’s economy develops, we are not at all surprised at the lack of intricate detail. What is more important for us is that the impetus behind economic transition is sustained in what will be a slow and difficult – but ultimately very important – process. In this respect, the statement delivers despite its shortcomings – at this stage, strong government intentions alone are sufficient for us to maintain our positive (but very selective) view on the market considering the attractive valuation at which equities trade. Discounting the lowly-rated banks sector, the Chinese market trades on a forward PE of about 10.5x, significantly below its long-term average of 12.3x. The Liontrust Asia Income Fund has an exposure to China of 45% and the companies we hold have an average PE of 10.9x, a gross dividend yield of 4.5% and conservative earnings growth expectations of over 10% per annum.

Anthony Cross, Economic Advantage: Will the end of QE signal the end of value over quality?

As the year has worn on signs have emerged that the equity market rally may have run ahead of itself; its scale seems disproportionate to the more moderate and tentative improvement in trading conditions which companies have pointed towards when releasing their financial results.

In order to quantify whether some investors’ expectations may indeed be getting ahead of the pace of underlying economic recovery, we are able to draw upon some useful analysis of the Q3 reporting season.

Disclaimer

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.