Liontrust Macro Equity Income Fund

April 2019 review

The Liontrust Macro Equity Income Fund returned 4.3%* in April, compared the FTSE All Share Index return of 2.7%.

 

In the absence of any all-encompassing macro narrative, stock and sector-specifics were the key drivers of April returns. This was amply demonstrated by the increase in the share price of Anglo Pacific (+26.8%), the portfolio’s best performing holding on the month. A mining royalties business and constituent of our Scarce Resource theme, Anglo Pacific gained on the strength of a supportive broker initiation and a Q1 trading update which affirmed its powers of cash generation; record quarterly income allowing the company to de-gear and offering a source of funds for future royalty purchases.FTS

 

The large-cap miners that comprise the balance of our Scarce Resource basket were similarly buoyant for the first half of April. However, subsequent weakness saw them detract from monthly returns. The underlying reason remains unclear, with the sell-off attributed variously to Vale’s efforts to reopen key mines and increase iron ore supply, the ongoing threat of US-Sino trade tariffs and the implications for liquidity of a Chinese shadow banking purge.

 

One China proxy and Fund holding that seemed immune to this was life insurer Prudential (+12.9%). Lacking any discrete reason adequate to explain Prudential’s share price gain, investor enthusiasm seemed consistent with March’s strong full-year numbers. These were characterised by strong Asia sales, solid regulatory capital and the value creation implicit in the coming spin-off of its UK operations.

 

April saw demand for broader UK financials. Portfolio companies Schroders (+12.6%), St James Place (+12.2%), Phoenix Group (+6.6%) and Close Brothers (+6.7%) numbered amongst the month’s best performers and made meaningful contributions to returns. To some extent, this follows the self-reflexive effect that equity market appreciation has on market proxies like financials. However, Brexit too seemed to play some small role, with an absence of bombshell headlines serving to galvanise investors. Rising Gilt yields offered corroboration.

 

Relative portfolio returns were enhanced by the underperformance of UK tobacco, a non-hold sector. April’s 6.6% decline followed gathering signs that the US would soon prohibit the sale of tobacco to under 21 year-olds. This corroborates our view that implacable public health and political agendas are the death knell for the tobacco industry. Seen this way, the sector’s modest ratings confer ‘value trap’ status and make recent outperformance look like little more than a bear squeeze. 

 

April’s performance was crimped by investor displeasure with a Q1 update from general insurer Hastings (-8.6%), a constituent of our Digital Economy theme. Mid-single-digit premium and policy growth were insufficient to prevent a 1% decline in revenues amid evidence of a competitive UK motor insurance market. Short-term disappointments aside, the business is keenly rated and is successfully executing a disciplined pricing and growth strategy. Its technological capabilities also leave it well-placed for a digital age.

 

AstraZeneca (-6.7%), a Global Pharma holding, also numbered amongst April’s laggards. The share price declined as the company announced a US$3.5bn share issue in order to finance a cancer JV with Japan’s Daiichi Sankyo and pay down debt. Whilst the deal burnishes AstraZeneca’s oncology credentials, the share sale implies that management view the company as fully-rated and see no capital structure wiggle-room given net debt of US$13bn. We remain underweight for these reasons.

 

Macro-Theme Allocation (as at 30.04.19):

Macro Equity Income April 2019 Themes

Macro-Theme Changes [1]:

Data Growth

We continued to reduce the positions in AT&T and Verizon as part of a wider Brexit-related reordering of the portfolio. The coming Brexit resolution implies increased appetite for sterling assets and less reason to hold US$-denominated companies.

New Oil Equilibrium

We raised exposure to BP, a highly cash-generative business with the scope to both increase shareholder returns and cut gearing. Its project pipeline holds prospect of earnings growth.

Population Ageing

The holding in Aviva was increased after March’s full-year numbers established the company as a turnaround prospect. New management’s adjusted dividend policy and intent to de-lever should improve balance sheet quality and help efface Aviva’s discount to peers. Its UK life operations are supported by favourable demographics and appetite for corporate pension de-risking.

This move was funded by a reduction in the Fund’s Phoenix Group position. Phoenix’s solid operational performance and attractive dividend profile means the company remains a hold in the portfolio.

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

 

 

Mar-19

Mar-18

Mar-17

Mar-16

Mar-15

Liontrust Macro Equity Income I Acc

4.8

-1.6

14.3

-3.4

9.3

FTSE All Share Index

6.4

1.2

22.0

-3.9

6.6

IA UK Equity Income

3.6

0.3

15.1

-1.2

8.4

Quartile

2

3

3

3

2

 

*Source: Financial Express, as at 30.04.2019, 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 31.03.2019, total return (net of fees and income reinvested), bid-to-bid, primary class.


[1] The omission of a Macro-Theme expresses the absence of notable portfolio activity.

 

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 Macro Thematic team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the Liontrust Macro Equity Income Fund and is likely to be lower than its corresponding Master Fund due to additional fees and expenses.

 

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.

Friday, May 17, 2019, 12:57 PM