Liontrust Global Innovation Fund

The Liontrust Global Equity Fund returned 0.5% over the quarter, versus the MSCI AC World Index which returned 3.6% and IA Global Equity sector average of 3.2% (both comparator benchmarks)*.

While we obviously never hope to return less than our benchmark, looking back at the first quarter of this year we are not surprised to have done so given the type of economic conditions that have prevailed during the period. The global economic outlook improved markedly over the quarter as vaccination programmes gained momentum across the world. This provided short-term relief to the share prices of the many deeply challenged businesses that make up large parts of today’s economy and stock market for whom the acute shock of the pandemic and global recession compounded ongoing chronic problems.

While these short-term share price returns were well earned by their beneficiaries, who were rewarded for bearing risk, we do not invest in such businesses because we believe that maximizing long-run investment returns is achieved by investing in businesses that have the best chances of long-run operational success. In particular, we invest in innovative businesses, which has earned the Fund strong returns in excess of the market during the overall period of pandemic and recession so far because innovative businesses tend to be able to adapt relatively well to shocks. But they generally lagged the market during the first quarter of this year and so did the Fund.

Indeed, taking the magnitude of the bounce in depressed stocks into account as well as sharply rising bond yields that have presented a valuation headwind to stocks with strong long term growth prospects (due to such stocks’ long duration cash flows) we are pleased with the resilience that the Fund displayed during the quarter. The biggest positive contributors to the performance during the quarter were Volkswagen and Upstart. We believe the strength of Volkswagen’s fast growing offering in electric powered vehicles and their production scale and range of brands makes them a credible contender for future leadership in the field alongside pure electric vehicle producers such as Tesla. Having made substantial investments in this transition over the past few years, Volkswagen is now not far behind Tesla and, valued at 0.5 times price to sales compared to Tesla on around 20 times, we believe represents much better value.

Upstart, a disruptor in the financial industry that works with banks to make consumer loans more efficient and inclusive using artificial intelligence, announced an impressive first set of quarterly results in March following its IPO in the fourth quarter of last year. One of the reasons we like the company very much is that having built the business’s core capabilities over the past decade, management’s strategy is to partner rather than compete with banks so that it can scale more quickly than other fintech lenders and establish a leadership position in proprietary data and knowledge.

The biggest detractors to the Fund’s performance during the quarter were Lemonade and Teledoc, both of which are companies we believe have exceptionally good long term growth prospects and the potential to build strong barriers to competition over the years to come. We have viewed the fall in both of their share prices during the quarter as an opportunity to take advantage of the much shorter-term considerations of other participants in the market and carefully increase our holdings in the companies at the discounted prices presented to us.

As the economy hopefully continues to normalise over the rest of the year, we believe it is likely that acute economic sensitivity will become less of a dominant factor in relative stock returns and longer-term considerations and operational quality will become more important again. This is the normal sequence of events in markets during economic recoveries and while this time is clearly unique in many ways, we do not expect this aspect of it to ultimately be substantially different. We believe the Fund is very well positioned for the road ahead due to the strength of the businesses in which we invest and their current valuation potential. For example, while the global stock market (as represented by our MSCI All Country World Index) has re-rated by around 20% on a price to sales basis since the beginning of 2020, prior to the onset of the pandemic, the Liontrust Global Equity Fund has actually de-rated by 5% owing to the strong sales growth of its businesses and the implementation of our valuation discipline over the period.

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

*Source: FE Analytics as at 31.03.21

**Source: FE Analytics as at 31.03.21. Quartile generated on 13.04.21

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 Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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.