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Liontrust fund managers’ scariest charts

As Halloween approaches, Liontrust’s fund managers highlight the most frightening data they’ve come across in their research

Shashank Savla: Why we remain underweight India despite reform progress

The approval of the Goods and Services Tax (GST) bill in August was an important step for India, and contributes to us holding a positive medium-term outlook for the country. However, in the near term, high equity market valuations mean that we still struggle to justify a significant allocation to the country. India remains one of the more expensive markets within the region, trading at 17.3x forward price/earnings ratio compared to 13.5x for the broader Asia Pacific ex Japan market. For now, we continue to see better opportunities in the rest of the region, and as such we continue to maintain our underweight position in India. 

Samantha Gleave: Picking Quality and Value routes to cash flow growth

Having had a cautious outlook for much of this year, we recently moved to a more neutral view on the prospects for European markets. The investment environment should continue to be one in which high-quality cash-generative stocks are in demand, but there are also pockets of the stock-market offering contrarian value opportunities.

In this blog, we assess the market outlook and look at two holdings which exemplify the contrasting types of investment opportunity we are currently able to identify.

Jamie Clark: Why Friedman is out and Keynes is back

Our Macro-Thematic investment process seeks to identify durable investment themes and associated opportunities to generate unit holder returns. Macro themes do not issue from a pre-populated Excel formula, or similarly linear process. Rather, themes arise from a qualitative approach that entails the continual amassing, sifting and synthesis of new evidence. By dint of analogy, the difference between a history essay and a maths test.

Mark Williams: Stock selection or country allocation – what’s the key to investing in Asia?

It is sometimes suggested that the most influential investment decisions are those of the big-picture, top-down variety. This approach would imply that, as managers of a regional equity fund, our most important choice is to determine in which countries we will be investing most heavily. For the Liontrust Asia Income Fund we see the top-down and bottom up as inextricably linked parts of the investment process: while there can be significant impact from thematic and macro-economic events, the success of the portfolio will always be determined by the performance of the underlying individual holdings.

James Inglis-Jones: Lessons from 10 years at the helm of Liontrust European Growth

1. Define and thoroughly research an investment process before you start implementing it

An investment process can’t simply be theoretical, it also needs to be backed up by historical analysis to demonstrate that it works.

When I joined Liontrust in 2006 and began developing the process that would be applied to the European Growth Fund, it was my belief that cash flow was the single most important determinant of shareholder returns. The basic idea was that companies run by conservative managers focused on and delivering cash flow would perform significantly better than companies run by aggressive company managers making large cash investments today to secure forecast growth in the future. We spent time thinking about how best to capture these qualities and ended up with two simple ratios – one focused on how the market valued a company’s cash flow, the other focused on how cash generative a company was.

John Husselbee: Do you hear the people sing?

In my experience of fund management over the past thirty years, political risk has traditionally been more associated with emerging market economies rather than those of the developed world. The simple rationale has been that emerging market governments are typically considered to be less stable, and so investors should in turn demand a risk premium in the form of a higher expected return. 

However the surprise result in the UK's referendum in late June on EU membership has now challenged this notion and serves as yet another reminder that in politics we can take nothing for granted. 

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.