Liontrust Global Alpha Fund Q4 2021 review | Insights

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust Global Alpha Fund returned 3.7% over the quarter, versus the MSCI AC World Index, which returned 6.2% and its average peer in the IA Flexible Investment sector which returned 2.3% (both comparator benchmarks)*.

The Liontrust Global Alpha Fund invests in high quality growth stocks that we believe can future proof your portfolio using the 5 key drivers of Science, Intellectual Property, New Deep Technology, Positive Social Change and Entrepreneurial Vision. The portfolio allocation is driven by a very substantial overweight in the mid-cap area of the market, as well as a smaller allocation to appropriate large and mega caps to balance the portfolio in areas where we do not see attractive mid-cap companies. This overweight of mid-cap companies, that range between $10bn-$30bn market capitalisation is designed to help identify those stocks that can grow quickly to a $50bn-$250bn and beyond. The Fund does not have direct holding in small cap stocks, those below $10bn and invests solely in equities, having zero allocation to bonds or property.

Global Equities had a strong end to the year, blunted modestly by the spread of the latest Covid-19 variant (Omicron) towards the end of December, prompting more restrictions and a push for a vaccine booster. Inflation concerns remain front of mind with central banks now weighing up the number and extent of interest rate raises coming in the next 12 months, sending some jitters through the market, particularly to higher growth stocks.

Nvidia was the top performer over the quarter from a stock perspective. The company continued its incredible share price rise over the final quarter of the year after announcing its third quarter results, while also benefitting greatly from an increase in chip demand. Revenue rose to a record $7.1bn, or a 50% growth rate from a year earlier. The company’s data centre revenue accelerated 55% to a record $2.94bn, and gaming revenue increased by 42%, also at a record of $3.22bn. Adjusted earnings per share came in at $1.17, which was 60% over the same period last year. Looking ahead, the company announced it is now estimating Q4 revenue of $7.4bn, which is above the average estimate.

Fortinet was another significant contributor over the quarter. The company develops and sells cybersecurity solutions, such as physical firewalls, antivirus software, intrusion prevention systems and endpoint security components. Over the quarter, the company announced its third quarter results, reporting that total revenue was $867 million, up 33% year-on-year (yoy). This was made up by product revenue coming in at $337 million and service revenue at $530 million, up 51% yoy and 24% yoy respectively. In addition, the company reported that for the first time in company history, billings came in at $1.06 billion.

Continuing the theme of earnings releases over the period, Cloudflare was another company to benefit from exceeding average estimates. For the quarter ending 30 September, the web infrastructure and website security company generated $172 million in revenue during the quarter (up 51% year-over-year), ahead of estimates.

Alphabet has been an ever present in our top performers over the year and the company’s shares continued to grind upwards over the quarter, with the market remaining positive on Google’s ability to pick up business as the economy reopens and withstand potential regulatory changes. Announcing Q3 profits and earnings above analysts’ estimates, CEO Sundar Pichai said he highlighted a vision to become an AI-first business five years ago and latest results show how the company is building more helpful products for people and partners, with ongoing improvements to Search for example.

DocuSign was among our weaker names over the period, with the shares dropping more than 40% in a single day in November after the company released Q3 2022 earnings. While numbers actually beat expectations, delivering 42% revenue year-on-year to end October, the billings (which better reflects recurring-type revenue for a software as a service business) fell to 28% in Q3 versus the same period the year before. This was below the company's guidance of 34% and DocuSign also downgraded billings guidance for Q4 2022 to 22%. With consensus figures of 32%, the market is clearly concerned about the company slowing.

The company also noted the sales team’s ability to upsell customers had fallen short of what they had been achieving pre-pandemic. DocuSign now has 1.1 million customers, a fourfold increase over five years. CEO Dan Springer said the disappointment stemmed from the fact sales were driven by meeting clients' orders, and as demand suddenly slowed, they have not been penetrating the ‘land and expand’ strategy that has been so successful.

Also among the detractors for the period was Block (formerly Square Inc), with the digital payments company reporting disappointing third quarter sales. While overall sales were up 27% from a year earlier to $3.8 billion, this was below the average estimate. In addition, gross profit, which includes fees taken from Square’s Cash App and Seller businesses, was $1.1 billion in the period, an increase of 43% from a year earlier, but little changed compared with the second quarter.

After an exceptional year last year, Twilio was also among the notable detractors over the period as investors fear fading growth coinciding with a less friendly rate environment. As a reminder, the company provides a communications API platform for software developers and has benefitted greatly from work from home procedures implemented during the Covid-19 pandemic.

We continue to be positive on the outlook for high quality growth stocks over the next year. We are especially positive as the mid cap area of the market continues to give considerable scope for further outperformance as the world continues to recover from the Covid-19 pandemic. Our emphasis on the drivers of Science, Intellectual Property, New Deep Technology, Positive Social Change and Entrepreneurial Vision will, we believe, guide the Fund towards those companies that will change the world as we adapt going forward.

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

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust Global Alpha C Acc	19.9%	43.6%	15.5%	-1.0%	25.3%
MSCI AC World	19.6%	12.7%	21.7%	-3.8%	13.2%
IA Flexible Investment	11.3%	6.7%	15.7%	-6.7%	11.2%
Quartile	1	1	3	1	1

*Source: FE Analytics as at 31.12.21

**Source: FE Analytics as at 31.12.21. Quartile generated on 07.01.22

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Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.