Liontrust US Opportunities Fund

• US equity markets entered January with a strong tailwind of expectations that a Trump administration would be positive for Wall Street, which led the S&P to an all-time high in mid-February. However, March saw optimism fade as US growth expectations moved lower on growing uncertainty around Trump policy and newsflow surrounding DOGE.

• Investors rotated away from Magnificent Seven names as AI fervour subsided and the threat of tariffs loomed. Defensive names outperformed with gold, tobacco and healthcare the leading sectors.

• Risk and volatility look to be here to stay, implying a greater portfolio role for safe-haven investments as well as throwing up opportunities to benefit from market pricing anomalies in equity and bond markets.

The Liontrust US Opportunities Fund returned -9.6%* over the quarter, compared with the -7.4% return from the MSCI USA Index and -7.2% average return in the IA North America sector, its comparator benchmarks.

Market backdrop

The first quarter 2025 felt like a repeat of 2022 with the S&P 500 Index falling 5.1% as rotation out of the ‘Magnificent Seven’ continued with AI-related fervour subsiding. Tech-heavy Nasdaq unsurprisingly suffered more, falling 8.2% with semiconductor names – AI flag bearers – falling 14% in aggregate. The comparison to 2022 is eerie, with an almost identical Q1 pullback which preceded a very ugly Q2 causing investors to take a more cautious stance in March.

Increased rhetoric from the Trump team around tariffs also pervaded the quarter (they didn’t become reality until 2^nd April in Q2) with investors positioning becoming more defensive. The prospect of higher tariffs on Chinese goods had a particular impact on domestic US consumer names and outlook for US consumption growth overall which inevitably fed through into rising expectations for inflation, a drag on the prospect for rate cuts in 2025.

Given the Mag7 contribution to S&P returns over the last three years, it’s unsurprising that the Q1 weakness was also driven by Mag7, with 70% of the S&P fall coming from those names. Nvidia fell 18%, Alphabet 18%, Apple 13%, Amazon 12%, and Microsoft 10%. The outliers bookending the group were Meta, which dropped just 1.5% in the quarter, and, most notably, Tesla, which fell a whopping 35% as delivery numbers from across the world came in significantly lighter than expected – in some cases, as much as 50% lower than the previous year.

Portfolio review

The Fund benefitted from action taken to lower our technology exposure early in the quarter, especially our under-weight of Mag7 with our non-weight in Tesla proving especially positive. Cloudflare (+1.5%), CBOE (+13%), and Chinese name Alibaba (+51%) were other portfolio highlights ranking in the top contributors over the quarter.

Given the more uncertain economic backdrop, our exposure to gold through gold miners Newmont and Barrick Gold (+26% and 22% respectively) was additive as was CBOE Global Markets, a top 10 holding, which rose as demand for its options products continued to grow.

Drags to performance came largely from our positions in Block (-42%) and Coinbase (-33%). Digital payments group Block suffered after Q4 revenues fell short of investor expectations with the shares giving back the Q4 performance of +24%. Coinbase also saw profit taking following the staggering +80% rally the shares experienced post the Trump election victory.

Portfolio changes

Over the quarter we added several companies with defensive characteristics, which should perform well in an uncertain economic environment in our view:

• Nomad Foods: A leading producer of frozen food, Nomad owns several well-established brands including Birds Eye, Findus, and Iglo.
• McCormick: As a global leader in flavour, it manufactures, markets and distributes spices, seasoning mixes, condiments and other flavourful products to the entire food industry. The company serves retailers, food manufacturers, and the foodservice business. McCormick benefits from consumers shifting to perimeter aisles of supermarkets for fresh foods, protein, and ingredients to prepare meals at home.
• Exelon: A utility that distributes electricity and gas in several states in the US, has a low-risk geographic footprint in states with minimal fire risk, and has reported strong growth in electricity demand from its datacentre clients.
• Verizon: A telecom company included due to its stable market presence, attributed to its comprehensive network infrastructure, emphasis on 5G technology, fibre optic networks, and critical services such as Fios internet and Fixed Wireless Access.

We funded this from:

• Samsara, Shopify, and ServiceNow based on valuation considerations as we reduced exposure to longer-duration holdings.
• Additionally, we exited our position in Intuit where we saw less upside.

Outlook

It is easy to see how an outsider could be forgiven for thinking that US economic policy is being created on the fly. The method of calculation for the significant tariff increases has been ridiculed and, at the same time, in just a week saw significant policy pull back and change, culminating in a 90-day suspension of all tariffs above 10% while terms are negotiated with specific countries.

The market voted very clearly on this uncertainty. In times of trouble, it would be normal for money flows to seek out the US dollar and treasuries as safe havens. In this case, that has not happened. In fact, the US 10-year yield increased 60bps in the week following the tariff announcements, marking its sharpest increase since 1982. Gold, the Swiss Franc and Yen looked like the safer haven assets with gold rising to consecutive highs throughout the reactionary period post 2nd April.

The move to suspend the new tariff levels on Wednesday 9 April, just a week after their introduction, resulted in a 12.5% up-move in the Nasdaq Index and 9.5% in the S&P 500 – the third largest single day up-move in equity market history, surpassed only by days in 2008 and 2001 during the Global Financial Crisis and the dotcom boom-bust. Incidentally, neither of these two bigger moves marked the bottom in markets during those two periods. Based on data showing significant short covering on this move higher, we have to believe it is likely the bottom is not in place here either.

As laid out in last quarter’s outlook, we remain convinced the concentration in a narrow selection of US companies is set to change. Passive investment flows, American exceptionalism and the AI revolution have all contributed to a very narrow group of winners. This set up was already of concern but it was not clear what the catalyst would be for it to change – it seems quite likely that the new Trumpian economics might well be that catalyst.

Following a sharp rally after the US elections in November, 2025 has seen the beginning of a rapid unwind – most clearly seen perhaps in the share price of Tesla. It rallied 40% from the election to the end of 2024; in 2025, the shares have fallen 37%. Another reversal of fortunes has occurred in semiconductors where the SOX index had a two-day drawdown of 17% in week beginning 7 April –the worst such move since the 1970s. There is not a single SOX constituent that rates positively on the Global Equity Team’s T-Score relative indicator.

We strongly believe that risk reward now favours more diversification away from passive core index strategies, Magnificent Seven and American exceptionalism.

The concentration of money flows into such a narrow portion of the market also leaves a level of vulnerability from the upcoming earnings season. We cannot see many companies brushing aside the tariffs and related earnings issues. At best, we may see guidance removed; at worst, it is likely that guides are lower. Investment levels are also likely to be cut as no one has any idea what the tax (tariff) implications will end up being.

All this concern and likely relative derating of the US leads us to continue to favour diversification into other geographies. Europe remains very cheap historically; India looks like a relatively tariff unaffected growth story and we still believe that China holds value based on the significant de-rating of names there. In fact, one feature of the protectionist policy on IT and AI that America has been pursuing is that of reduced innovation in the US market itself. Deepseek was a great case in point.  Faced with losing access to the most powerful chipsets in AI, the Chinese have had to be far more innovative and they have been just that. Could the reluctance of the US to make their hardware available to China end up leaving then lagging in certain areas of innovation? 

Within the US equity market itself, we believe diversification is also important. On a top level, the S&P Equal Weight is expected to outperform the S&P. We look towards similar types of diversification in US equity portfolios.

Finally, it seems clear that volatility and uncertainty are here to stay for the time being and so safe haven assets should form a bigger part of  any portfolio. Gold has been a stellar performer and that is likely to remain so.

In conclusion, risk levels have increased; Trumpian policy is unclear and subject to change on a coin toss. Equity risk premia increase on that basis and diversification within the US equity market makes sense. The Q1 earnings season is likely to be very cautious and can only result in raised concerns for those companies that are in the eye of the tariff storm. We still see many opportunities in equities with significant polarisation between winners and losers, an ideal backdrop for active managers.

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

* Source: FE Analytics, as at 31.03.25, total return, net of fees and income reinvested.

Key Risks 

Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. This Fund may have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the Fund's value than if it held a larger number of investments. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. International banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.