Liontrust Global Income Fund

The Fund returned 6.2%* in sterling terms in February. The MSCI ACWI High Dividend Yield Index comparator benchmark returned -0.3% and the average return from funds in the IA Global Equity Income sector – also a comparator benchmark – was 0.4%.

President Biden’s US$1.9 trillion plan fuelled investors’ inflation expectations and sparked a sharp rise in sovereign bond yields. The US 10-year yield rose 45 basis points to its highest level for a year. Biden’s fiscal plan passed through the US House of Representatives late in the month and if passed through the Senate, it would add to the already record amounts of stimulus from central banks and governments around the world. Moreover, the global vaccination efforts could mean economies open up once again in the near future, which would further add to the inflationary pressures.

The consequence for the equity market was a strong run for value stocks. Rising bond yields has a significant impact on the valuations of growth stocks who by definition are long duration assets: valuation models for growth stocks are very sensitive to a rising discount rate of their future assumed high growth. Value stocks by contrast are short duration whose profits are much more likely to benefit from a pick-up in inflation owing to the beneficial effects of inflation on pricing power. In February, the MSCI World Value Index rose 2.8% in sterling terms, compared to the MSCI World Growth Index’s 1.4% decline. Given the Fund’s value bias, this was a boon to performance.

On the sector front, energy (+14%) was the best performer in the MSCI World Index, followed by financials (+8.2%) and communication services (+4.3%). Some of the more defensive, bond proxy sectors were among the heaviest fallers, such as utilities (-7.4%), health care (-4.4%) and consumer staples (-4.2%).

Two of the Fund’s best performers were Carnival (+35%) and International Consolidated Airlines Group (+34%). They have both been among the worst hit by the pandemic, with cancellations of cruises and flights due to the restrictions but shares in both companies traded higher in February as investors factored in a return to the pre-Covid world. Cruise operator Carnival took advantage of the higher share price by raising US$1bn in an equity offer, which it will use for general corporate purposes.

British Airways owner IAG’s full year results showed the considerable impact of the pandemic; operating loss for 2020 amounted to €7.4bn, with passenger revenue falling 76%. The company was more optimistic about the future, with the vaccination rollout progressing well and a big increase in holiday bookings since the UK government’s announcement on the pathway to normalisation. 

Meanwhile, Aggreko’s (+37%) shares shot higher after the temporary power company confirmed that it had been approached by TDR Capital and I Squared Capital for an 880p per share acquisition deal. The price represented a 39% premium to Aggreko’s shares at the time.

The Fund’s heaviest fallers all released results. Australian bathroom and kitchen supplier GWA Group (-12%) released interim results for the six months to end December 2020, in which it reported a 4.4% decline in revenue and 16% decline in normalised earnings before interest and taxes (EBIT). The company said the period was marred by the pandemic which caused a downturn in the construction market, but there were signs of improvements in the second quarter. Management anticipate an increase in detached residential completions and renovations in the remainder of the financial year and the group is well placed to capitalise once confidence returns to the market. 

Gaztransport & Technigaz (-9.4%) disappointed the market with its outlook for 2021. The specialist in liquified natural gas (LNG) containers for shipping and storage said consolidated revenue is expected to be between €285m and €315m, compared to €396m in 2020 while EBITDA is forecast to be €150m-€170m in 2021 versus €243m in 2020. The company cited higher staff costs as part of the reason for lower guidance.

Emerging market asset manager Ashmore Group (-8.6%) recorded net outflows of US$1.4bn in the six months to 31 December 2020, but this was more than offset by a strong investment performance, which led to assets under management increasing 11% to US$93bn. Net management fee income fell 17%, which fed into an overall adjusted net revenue decline of 12%.

Positive contributors to performance included:

Aggreko (+37%), Carnival (+35%) and International Consolidated Airlines Group (+34%).

Negative contributors to performance included:

GWA Group (-12%), Gaztransport & Technigaz (-9.4%) and Ashmore Group (-8.6%).

The Fund has an income target benchmark of the yield on the MSCI World Index. The Fund’s most recent income distribution was announced on 31 December 2020. Its distributions over the 12 months to 31 December 2020 – expressed relative to the Fund’s price on 31 December 2019 – give a 12-month yield of 3.7%. The MSCI World Index yield on the same basis was 2.0%.

Discrete years' performance** (%), to previous quarter-end:

*Source: Financial Express, as at 28.02.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 31.12.20, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Liontrust European Growth Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 

DISCLAIMER

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.