Liontrust Global Innovation Fund January 2022 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 Innovation Fund returned -13.3% in January. The MSCI All-World Index comparator benchmark returned -4.0% and the average return in the IA Global Equity Income sector, also a comparator benchmark, was -7.2%.

Among the notable contributors, American Express (+11.2%) benefited from the announcement that fourth-quarter earnings had surpassed estimates thanks to record credit card spending, along with the company boosting forecasts for revenue and profits in 2022. American Express is gaining market share against the big two card networks Visa and Mastercard as card transactions migrate to electronic transactions. Digital wallets and online checkouts create a more level playing field than leather wallets. The burgeoning ranks of Amex members are increasingly focused on rewards, where American Express beats the big two hands down.

As commerce shifts online, merchants are pressured to reduce even the smallest payments frictions so accepting Amex is essential. Moreover, Amex is thriving while travel remains subdued. Its revenues and profitability are already above pre-covid levels and as travel recovers it will enjoy excellent operating leverage.

In a disappointing month for Fund performance, Sea (-32.2%), the low-cost ecommerce company was the most notable detractor to returns. Sea comprises three complementary businesses: gaming, via Garena, one of the leading global game developers and distributors; ecommerce via Shopee, an ultra-low cost Amazon.com primarily in South East Asia and increasingly expanding to sell the regions low cost manufactured goods in other emerging markets such as Latin America and India; and fintech via. Shopee Pay. The highly profitable Garena produces cash to fund the growth of Shopee while Shoppee Pay leverages of Shopee and enhances its take rate.

Netflix (-28.4%) plunged after disappointing the market with forecast figures for new users – the company announced that it expects to add 2.5m subscribers, which fell below the average estimates. Netflix added just 18.2 million customers in 2021, down about 50% from the record year before. It’s forecasting that slowdown will continue, at least for another quarter.

We continue to believe that original content means TV streamers are differentiated from one another not commoditised. In turn, this advantages the scale player, which can spread content production cost over more subscribers and offer a higher quality/price ratio to each subscriber than competitors. At >200m, Netflix currently provides c.$20bn of annual content for c.$12 per month, the best quality/price in the industry. In turn, this superior offering draws more demand and thus, we believe, compounds Netflix’s advantage.

Another notable detractor was PAR Technology (-28.3%), a turn-around business that for over forty years has provided point-of-sale hardware to major fast-food chains (including McDonalds, KFC and Taco Bell) and is today focused on building a unified software operating system to modernise the whole restaurant. Fast-food restaurants today face major challenges due to the need to cater to customers through multiple channels, including mobile ordering, curb-side pick-up and so on, and manage the workflow throughout the overall operation.

Moreover, these challenges are combined with very high levels of competition, low margins and rising labour costs. PAR’s experience, long-standing customer relationships and focus, following a recent change of management, give it a good chance of success in delivering large productivity gains for restaurants and establishing a long-term competitive advantage in a large market.

Going into 2022, the market’s preference for financials, energy and low-multiple stocks has continued, as the narrative around higher-than-expected inflation drives down the shares of companies that trade on optically high multiples. This rotation into more ‘value-oriented’ stocks was the cause for a number of our holdings falling, with no other significant stock-specific newsflow – one example of such a company impacted by this rotation was Nvidia (-16.0%).

Nvidia has held an unrivalled position within computer game graphics for the past 25 years via its graphics processing units (GPUs). However, the computational tasks required for artificial intelligence are similar to gaming and as such Nvidia has been able to position itself technologically as the performance leader by far in AI computing capabilities. We view AI as a major General Purpose Technology (GPT), and as such the likely growth and breadth of AI applications across the whole economy means Nvidia has robust growth drivers for the years to come.

The current adjustment to interest rate expectations taking place presents a short-term valuation challenge to disruptive and innovative growth companies, but, we believe, not a significant longer-term operational one. Indeed, innovative companies are the most resilient and adaptable in the face of challenges and, as such, as higher interest rates lead to tougher macroeconomic conditions, we expect them to manage much better than non-innovators.

Top performers

American Express (+11.2%), Tencent (+7.5%), ING (+6.2%), Progressive (+6.9%), Pinduoduo (+3.6%)

Bottom performers

Sea (-32.2%), Netflix (-28.4%), PAR Technology (-28.3%), Intuitive Surgical (-20.2%), Tradeweb Markets (-14.5%)

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

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust Global Innovation C Acc GBP	12.1%	32.1%	18.3%	-2.7%	20.5%
MSCI AC World	19.6%	12.7%	21.7%	-3.8%	13.2%
IA Global	17.7%	15.3%	21.9%	-5.7%	14.0%
Quartile	4	1	4	2	1

*Source: FE Analytics as at 31.01.22

**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.