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
Key Risks