Liontrust Balanced Fund

H1 2020 review

The Liontrust Balanced Fund returned 10.5% over the first half of the year, compared to returns of -4.3% from the IA Mixed Investment 40-85% sector*. This performance places the Fund in the top decile of its peer group for the period under review.


The first quarter of 2020 proved to be one of the most painful quarters on record for UK and global equity markets. The spread of the COVID-19 pandemic, and its impact on the global economy, caused significant sell-offs in February and March as the enormous immediate economic impact of the social distancing measures required to fight the pandemic became apparent to investors. The market appeared to find a floor towards the end of the quarter, largely thanks to the unusual yet arguably needed combination of both monetary and fiscal easing on the parts of global central banks and governments. The second quarter saw the global economy venturing forth on the path to recovery following the previously unimaginable disruption caused by COVID-19. Fuelled in no small part by the aforementioned large-scale fiscal and monetary stimulus, markets have recovered much of the decline suffered as the pandemic swept across the globe. The divergence between developed and emerging market returns can be at least partially attributed to the major developed economies putting together notably larger stimulus packages compared with the major emerging markets.

The Fund’s outperformance over the first quarter was driven by a number of factors. The most of important of these, however, was the Fund’s exposure to exchange traded put options, which were strong contributors to the portfolio’s returns as global markets sold-off aggressively. However, these options were a detractor in the second as markets rebounded from the aggressive sell-off seen in the first three months of the year. Within our equity portfolio, the Fund benefited from its exposure to technology stocks. Tech companies, particularly those in popular, fast growing industries like software and e-commerce, have continued to outperform on both an operational level and in equity markets. These companies have not only proven resilient in a downturn but have reaped many of the benefits from the recovery so far as well giving investors a potent source of alpha as trends, expected to take years, have been accelerated in a matter of months.

At the stock level, the Fund’s outperformance over the first half of the year was led by US mega-caps; Amazon, Apple and Microsoft, with notable contributions from Nvidia and PayPal also. Amazon has held strong during this crisis. The source of the company’s strength is twofold. First the demand for its AWS cloud platform has remained high as client businesses continue to utilise cloud applications to manage a decentralise workforce as well as other internet clients such as Netflix and Ocado who have seen a surge in demand relying on AWS’s infrastructure. Secondly, there has been a jump in demand on its delivery platform as the US and other markets go into varying levels of lockdown, customers are forced rely on Amazon and its fulfilment infrastructure for provision of essential goods and commerce. This rise in demand has been so acute that Amazon recently put out a call for 100k new warehouse workers and boosted overtime pay from 1.5x to 2x. Amazon has also put many non-essential items on hold while it focuses on delivering essentials, this not only gives Amazon good PR credit as a corporate citizen but also allows it to continue to operate while other non-essential goods providers (including many competitors) are forced to close.

As mentioned earlier, Nvidia was another strong source of returns of the quarter. The company, who produce state of the art GPU’s, which, alongside the products gained from the successful acquisition of previous portfolio company, Mellanox, provide the key hardware for the next generation of cloud computing data centres. Cloud adoption was a strong trend pre-Covid and has since accelerated as the demands of accessing cloud software while working from home, necessity for a web presence with solid infrastructure for businesses and consumer demand for internet services such as video streaming, have risen sharply. Nvidia continues to stand to benefit as data centres are upgraded and expanded to cope with these new loads.

Finally, PayPal have massively benefited from the surge in digital payments, with adoption accelerated by the Covid-19 outbreak with the sharp rise in e-commerce and fears of cash as a disease vector driving consumers to adopt digital payments solutions in record numbers. PayPal saw 7.4m new accounts open in April alone, a new record and a 134% yoy rise.

On the other side of the ledger, Disney, which was a fairly recent addition to the portfolio and had been showing signs of great promise, was a notable detractor to performance during the period under review. Our investment thesis centred around the launch of Disney+ as a fantastic opportunity to directly monetise its unique, and frankly dominant, intellectual property as well help spin the flywheel of the wider Disney corporation that can then further monetise this engagement through the sale of merchandise, park tickets and experiences. Unfortunately, it is in these latter parts of the Disney corporation, Parks and Experiences, that the COVID-19 has managed to inflict a heavy toll on the company. This began with the shutdown of its Shanghai Disneyland resort (now partially reopened) then Hong Kong and Tokyo, followed by the rest of its parks in the US and Europe for an indefinite period. These parks have been maintained and it seems will reopen soon, however they have been a great drain on the company’s overall finances as Disney continues to pay a great deal of fixed operating costs. It remains to be seen to what extent the parks will be able to begin to recoup losses in the near term with global tourism severely reduced and required measures such as temperature checks (currently mandatory in the Shanghai resort), enhanced hygiene protocols and overall capacity limitations in place putting off potential visitors.

We expect this nascent recovery to pick up steam in the second half of the year, although it may not be entirely smooth sailing – bouts of risk aversion triggered by renewed outbreaks of the virus remain a distinct possibility.

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








Liontrust Balanced C Acc






IA Mixed Investment 40-85% Shares













*Source: Financial Express, as at 30.06.20, 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 30.06.20, total return (net of fees and income reinvested), bid-to-bid, primary class.


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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.


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.

Thursday, July 16, 2020, 3:28 PM