Liontrust Global Income Fund

January 2019 review

The Fund returned 6.0%* in sterling terms in January compared with 3.8% average return from funds in the IA Global Equity Income sector.

 

The positive start to 2019 was a stark contrast to the way 2018 ended for equity markets. Markets found some respite after key headwinds eased slightly in January. There was optimism that trade tensions between China and the US could recede as the pair continued talks amid a truce against further tariffs. Protectionist measures between the two superpowers have begun affecting the real economy with economic data from China in particular showing signs of a slowdown. This was mirrored in corporate news too, most notably with Apple warning of slowing iPhone revenue from China.

 

As is often the case in China, the central bank provided extra stimulus to calm investors. The People’s Bank of China announced that it would reduce the reserves that commercial banks are required to hold, which would free up around US$117bn in its banking system.  

 

The Federal Reserve, however, was the main focus for investors as the US central bank softened its rhetoric on its balance sheet normalisation and the pace of interest rate increases. Fed members stated that they will be patient with further adjustments to monetary policy as a result of building global economic and financial pressures and muted inflation. Increasingly tight monetary policy has suppressed the market in recent months and the Fed’s statement lifted this pressure for the time being.

 

The gains in global equities were broad based, with every sector in the MSCI World Index ending higher in sterling terms. The best performing sectors were real estate (+7.4%), energy (+7.2%) and industrial (+4.9%).

 

Miners were among the biggest gainers for the Fund: Rio Tinto (+12.3%) and Anglo American (+11.2%). Following the tragic disaster at the Vale mine in southern Brazil, the price of iron ore rose due to the expected shock to supply. This in turn lifted share prices of mining companies.

 

Emerging markets asset manager Ashmore Group (+10.6%) also participated in the market rally. The group produced an in-line trading statement for the quarter to end December 2018, with net inflows of US$500m offset slightly by a negative investment performance which meant assets under management increased by US$300m. The company’s shares rallied as the month wore on, tracking the rebound in emerging market equity markets.

 

Marks & Spencer Group (+16.8%) saw a turnaround in its share price performance. The stock rose early in the month following Christmas trading updates from retailing peers suggesting that the festive period was not as tough as some may have thought. The food and clothing retailer’s own results were solid against a weak backdrop.

 

The handful of portfolio stocks which ended lower in January fell as a result of adverse company-specific news. Air New Zealand (-9.3%) cut its earnings guidance for the year to 30 June 2019 to NZ$340m-NZ$400m from NZ$425m-NZ$525m as a result of problems with Rolls-Royce engines. The group said the engine issues have impacted the business commercially and operationally, but expect them to improve later in the year. US personal care company Kimberly-Clark (-5.0%) disappointed the market with its fourth quarter update. Adjusted operating profit fell 13% to US$742m, much of which can be attributed to a rising pulp costs. The group expects the challenging macro environment to improve in 2019, but maintained that it will still be challenging.

Vodacom (-0.5%) experienced a slowdown in its core South African market in the fourth quarter. The subsidiary of Vodafone Group saw revenues in South Africa decline 1% as a result of the company’s new pricing strategy and a weak economic backdrop.

 

Positive contributors to performance included:

Navigator (+15.3%), Rio Tinto (+12.3%) and Genworth MI Canada (+12.0%).

 

Negative contributors to performance included:

Air New Zealand (-9.3%), Kimberly Clark (-5.0%) and Vodacom Group (-0.5%).

 

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

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Liontrust Global Income I Inc

-5.8

8.4

28.5

-4.4

0.5

IA Global Equity Income

-5.8

10.4

23.2

1.5

6.7

Quartile

3

3

1

4

4

 

*Source: Financial Express, as at 31.01.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.

 

For a comprehensive list of common financial words and terms, see our glossary 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. Investment in Funds managed by the Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Liontrust European Growth Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 

Disclaimer

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.

Wednesday, February 13, 2019, 12:01 PM