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Liontrust Sustainable Future - Our Investment Process

Our Investment Process

Our Investment Process

Identifying emerging trends and long-term themes is the cornerstone of our investment process. From the development of personalised medicine to the transition to lower carbon fossil fuels, we are fascinated by the wide-ranging trends that are changing the world and the opportunities they create. Thirty years ago, the IBM PC XT was the pinnacle of technology, for example. Today, we have the iPhone, which is not only much more powerful but can also fit into your pocket and is half a million times more energy efficient.


We can also point to advances in healthcare that have led to dramatic improvements in life expectancy. For instance, if a man was diagnosed with prostate cancer 30 years ago, he had a less than 50% chance of living more than five years; today, the odds are around 90%.


Why is this relevant to investors? Many of these outcomes have been delivered by the power of capitalism and the creativity of businesses generating strong profit growth and investment returns. It is these innovative businesses in which we have invested for close to two decades, and we feel most investors underestimate the speed, scale and persistency of such trends within our economy.


Therefore, we look at the world through the prism of three mega trends—Better resource efficiency, Improved health, and Greater safety and resilience—and 20 underlying themes within these trends.


Well-run companies whose products and operations capitalise on the transformative changes can benefit financially. We believe that identifying these powerful themes and investing in the equities and bonds of exposed companies can make for attractive and sustainable investments.


While themes are at the heart of our investment idea generation, there are three further criteria all potential holdings have to satisfy.


  • Broader sustainability of the company: While a company might have significant exposure to a theme, we also have to check how sustainable the rest of its activities are. We use our Sustainability Matrix to assess a company’s overall product mix and operations with respect to sustainability and environmental, social and governance (ESG) performance.
  • Business fundamentals: Using a set checklist, we assess a company’s ability to generate high returns on equity. This includes analysis of the competitive dynamics facing the business and the resilience of its advantages versus competitors. We also meet with management to understand their strategy for the business and how they think about capital allocation.
  • Financial modelling and valuation assessment: This information is used to construct financial models detailing the revenue, margin and earnings progression the company is likely to deliver over the next five years. Applying the relevant valuation multiple to these allows us to derive a price target achievable over the next three years. When this shows significant upside, the investment is recommended as a buy and available to be included in our SF funds. Every recommendation is presented to and challenged by the Sustainable Investment team at our weekly Friday meetings.

Our team scours the globe for the best investments exhibiting these qualities. We then construct portfolios comprising these companies with the aim of delivering strong returns while minimising volatility.

Learn more about the Liontrust Sustainable Future Process here



Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


The information and opinions provided 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. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.
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