Liontrust Income Fund

Q3 2019 review

The Liontrust Income Fund returned -1.5% over the quarter, underperforming the FTSE All Share Index and the IA UK Equity Income sector, which returned 1.3% and 1.1%, respectively. Nevertheless, the Fund ranks in the top decile of the sector and is outperforming the Index over one, three and five years.

Market Overview

 

It was a volatile third quarter, with macro factors dominating equity markets. The key issue over the quarter was the ongoing US/China trade war, which fed into concerns about a global economic growth slowdown. However, at the same time, central banks remain highly supportive, with the US Federal Reserve’s rate cuts providing floor to equity markets. Within the UK, Brexit uncertainty continued, with politics once again weighing on market sentiment. As a result, and despite a small rally in September, the pound fell c.4% versus the dollar over the quarter. While global equities delivered positive gains, there was large rotation within the market with value stocks, having considerably underperformed over the course of 2019, enjoyed sharp rally in September as global bond yields rose. As a result, high growth areas of the market (such as technology stocks), witnessed a painful de-rating.

 

Portfolio attribution

 

The quarter was a tale of two halves for the Liontrust Income Fund. While the portfolio protected capital far more effectively than the wider market during the trade war induced sell-off July/August, the Fund lagged during the subsequent rally, which was led by value stocks. The key detractors to returns over the quarter as a whole included our mining stocks such as Anglo American, Rio Tinto and Glencore, which underperformed thanks to uncertainty surrounding global economic growth. Our technology holdings also underperformed in September as investors temporarily rotated away from high growth stocks as bond yields spiked. Our strongest contributors included our healthcare stocks AstraZeneca and GlaxoSmithKline, CME Group (which once again benefitted from heightened market volatility) and BAE Systems, which rallied as sentiment towards industrials improved. Our exposure to exchange traded put options was also additive.

 

Outlook

 

Despite the re-escalation in the US/China trade war, we remain optimistic in our outlook for the global economy and continue to manage the portfolio with a clear international tilt. Fears surrounding global economic growth continue to weigh on investor sentiment, but we believe fears of a recession in the US are considerably overblown and while Chinese growth is slowing, we believe the authorities have a huge amount of tools at their disposal (both monetary and fiscal policies) to offset the impact of US tariffs. While Brexit uncertainty will continue to be a source of volatility, our concerns surrounding the UK primarily stem from more structural issues facing the economy. These include slowing and polarisation of productivity growth, with only a small proportion of UK firms able to keep up with global peers in this regard.

 

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

 

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust Income C Acc

5.0

7.6

13.2

16.7

0.1

FTSE All Share Index

2.7

5.9

11.9

16.8

-2.3

IA UK Equity Income

-0.1

3.5

10.8

11.3

3.6

Quartile

1

1

1

1

4


*Source: Morningstar as at 30.09.2019, on 17.10.2019.


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 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

 

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.

Tuesday, October 22, 2019, 3:39 PM