Liontrust Global Alpha Fund

• Global equity markets sold off sharply in April following ‘Liberation Day’ in the US but quickly reversed the losses amid easing trade tensions, and a calmer geopolitical environment which allowed investors to focus on robust earnings.
• Growth decisively outpaced value as technology and communication stocks led the rally globally while healthcare and energy lagged.
• Portfolio activity included adding to high-conviction positions to capitalize on the improved tariff outlook utilising positive stock-specific T-score signals.

The Liontrust Global Alpha Fund returned 8.4%* over the quarter, compared with the 5.1% return of the MSCI ACWI Index comparator benchmark and the 5.6% average return in the IA Global sector (also a comparator benchmark).

Market backdrop

Global markets were shaken by President Trump’s ‘Liberation Day’ set of tariffs, set at higher levels than had been expects. However, trade tensions eased as the majority of these tariffs were put on pause pending negotiations, and markets rallied strongly through May and June. 

The S&P 500’s 6.2% US dollar terms bounce in May was the strongest monthly performance since November 2023. This took the US Q2 return to 10.8%, but there was also strong performance elsewhere including Europe (+12%), Japan (+18%), and emerging markets (+12%). Korea was especially strong, up 35% following a positive election outcome. European markets are outshining the US so far in 2025; Germany’s DAX has risen a record breaking 35.9% in the first half of 2025.

The US dominated benchmark index – the MSCI All Country World – saw a reasonably broad-based rally over the quarter, although, in a familiar pattern from the last couple of years, it was technology (+23%) which led the rise, followed by communications services (+18%).

Growth and technology stocks were boosted by the prospect of up to two rate cuts in the US before year end, driving longer-duration growth names to rally. However, within technology, there was evidence of broadening out of market leadership, with the Magnificent Seven dominance showing signs of waning. While Nvidia (+44%) Netflix (+43%), Microsoft (+32%) meaningfully outperformed over the quarter, returns from the other Mag7 constituents were more disparate. In fact, Apple, Tesla and Alphabet’s year-to-date returns are now a disappointing -18%, -21% and -7% respectively.

Healthcare declined in Q2 (-3.5%), led lower by regulatory concerns and company-specific (UnitedHealth) challenges, while energy (-3.6%) also posted a negative return, tracking commodity prices lower as fears over global trade frictions outweighed the potential supply disruptions from Middle East instability.

Portfolio review

The holding in Seagate Technology (+60% in sterling terms) surged during the quarter, making it the strongest contributor to portfolio returns. Strong Q1 results and a successful analyst day led to significant upgrades to earnings forecasts which we believe still under-estimate the potential for increased HDD data storage demand. We retain our high conviction in the name.

The portfolio’s other technology stocks also featured prominently; Nvidia (+37%), SK Hynix (+57%), Cloudflare (+64%), Netflix (+35%) and Snowflake (+44%) all ranked in the top ten quarterly contributors.

Coinbase (+92%) also featured at the top end of the leaderboard as the crypto exchange benefitted from the passing of the ‘Genius Act’ which was viewed as significant milestone for the crypto industry.

On the other side of the attribution table, Elevance Health (-16%) was dragged down by negative sentiment towards the healthcare sector.

Our private holding in Ultromics also dragged as the latest funding round proved challenging. We are reassured that the longer-term outlook remains positive.

Portfolio Changes

The more positive newsflow surrounding tariffs led us to deploy some of our cash by adding to select positions, including SK Hynix and Seagate on improved earnings outlook and subsequent price target increases, and Cloudflare, Shopify and Snowflake on positive signals from our T-score indicators.

We reduced exposure to names which were approaching near-term price targets following strong recent outperformance. These included Paypal, SAP and Costco. 

We rotated this capital into our China exposure through a new position in Alibaba and adding to the EV automaker BYD. China/US trade tensions have eased and the valuation gap to global peers remains very attractive at current levels. China now represents 6% of the portfolio.

We also initiated a position in Atlassian, a company we have owned in the past. Atlassian has enjoyed continued strong cloud migration and growth as well as making strong progress on its AI platform, which has become stickier, added more value, and extended its reach across every team in the enterprise. Our intrinsic valuation suggests over 30% upside to the current share price.

Outlook

Global geo-political risk is high, led by a US administration that is putting America first. This creates a backdrop that requires a much more careful assessment of risk versus reward. We believe that risk-adjusted returns will be front and centre of investors’ minds running through the second half of the year.

Thematically, we remain positive on the potential for AI to drive significant benefits across all industries and continue to work on identifying winners.

We have waited patiently for the crypto world to unfold and the IPO of Circle Internet could act as a Chat GPT moment for Stablecoins. This will benefit the entire blockchain/crypto supply chain and – together with fintech – remains a key theme for the rest of this year. 

Our base case is that equity markets globally remain little changed in the second half of the year, but that the polarisation of winners and losers will remain significant.  In this environment, overall market returns will be less important and, for the first time in many years, stock selection outside the very biggest companies in the world will matter, as will geographical diversification.

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

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.

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 or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. 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. The Fund will invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. The Fund may invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term. 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.

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