Liontrust Macro Equity Income Fund

May 2018 review

The Liontrust Macro Equity Income Fund returned -0.2%* in May, compared with the 2.8% return from the FTSE All Share Index.

 

The biggest contributor to May’s soft showing for the Fund was late-month weakness amongst the portfolio’s life insurance holdings.

 

It’s worth making the distinction that this stemmed less from the degree of any adverse price movement and more from the scale of our exposure to life insurers. As the largest sector weighting in the portfolio, relatively modest share price movements can generate outsized portfolio effects.    

 

But, to be absolutely clear, May brought no incremental reason to question our conviction that the sector will benefit from the powerful twin trends of rising rates and the saving needs of an ageing population. Rather, May’s pullback issued from the sector’s sensitivity to rates, as Italian political dysfunction triggered a rush to safe haven assets and a corresponding drop in sovereign yields.

 

With 66 prime ministers since World War II, we read Italy’s troubles as characteristically episodic and merely a temporary check on higher rates and the portfolio’s exposure to rate-sensitive financials.

 

May returns were also affected by BT’s poorly received full year statement. Broadly in-line financials were undercut by soft guidance and a triennial pension review that delivered near-term dividend maintenance at a cost. Notwithstanding encouraging signs in consumer and opportunities in enterprise, the company remains cheaply rated. But a lack of visible share-price catalysts suggests this may remain the case in the interim and the position was reduced.

 

Brick manufacturer Ibstock, an Infrastructure Spending constituent, was also prominent amongst the month’s fallers. Perplexingly in this instance, weakness stemmed from an AGM statement that spoke of robust fundamentals and supportive demand for new build housing. Accordingly, we remain comfortable with a business trading on a sub-market multiple and whose products address the UK’s structural deficit in affordable housing.

 

This is not to suggest that May lacked reason for cheer. Foremost amongst which was the more than 30% increase in the share price of long-term holding Bloomsbury Publishing. May’s move was driven by an impressive set of final results that evidenced 10% earnings growth and a 12% increase in the dividend. This marks Bloomsbury’s full rehabilitation from the hangover that followed the success of Harry Potter and its transition to a balanced business with exciting growth prospects.

 

Challenger Bank and Rising Rates holding, Virgin Money, appreciated more than 20% on the strength of an all paper offer from Clydesdale Bank. Following in the wake of TSB, Shawbrook and Aldermore, Virgin is only the latest of our Challenger Bank holdings to receive bid interest.  This pattern is of little surprise to us, given the extent to which depressed market ratings gave little credence to the growth prospects of such businesses.

 

May also saw a strong showing from the portfolio’s large-cap miners. We note the lack of any specific cause and view share price gains for such obviously cyclical businesses as simply a product of investor appetites in the midst of the prevailing economic expansion.

 

Macro-Theme Allocation (as at 31.05.18):

 

Macro-Theme Allocation 31.05.18

Macro-Theme Changes (1):


Population Ageing

We trimmed the position in Aviva in order to increase exposure to St James Place. The pensions advice gap delivers a structural growth tailwind for St James Place, which is a scalable, cash-generative business with intent to return cash.

 

Infrastructure Spending

A new position was opened in BHP Billiton, complimentary to the Fund’s existing resource holdings. BHP’s resource mix gives it exposure to both the advent of electric vehicles and the structural infrastructure spending deficit. It is cheaply-rated and highly cash generative;

 

Data Growth

We reduced the position in BT following a disappointing full year statement that drove earnings downgrades. Its triennial pension review gives clarity on deficit funding and dividend maintenance, but at a cost. Its attractive valuation is offset by a lack of near-term catalysts.

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

 

Mar-18

Mar-17

Mar-16

Mar-15

Mar-14

Liontrust Macro Equity Income I Acc

-1.6

14.3

-3.4

9.3

16.5

FTSE All Share Index

1.2

22.0

-3.9

6.6

8.8

IA UK Equity Income

0.3

15.1

-1.2

8.4

14.0

Quartile

3

3

3

2

2

 

(1) The omission of a Macro-Theme expresses the absence of notable portfolio activity.

 

*Source: Financial Express, as at 31.05.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

 

**Source: Financial Express, as at 31.03.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.

 

This review has been prepared for the Liontrust Macro Equity Income Fund but is also representative of the Liontrust GF Macro Equity Income (the Feeder Fund). The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the Liontrust Macro Equity Income Fund (the Master Fund) and will typically be lower due to additional fees and expenses.

 
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. 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.

Investment in the Fund 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.

Disclaimer

This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.

Monday, June 11, 2018, 9:42 AM