Liontrust Global Alpha Fund

Q3 2020 review

The Liontrust Global Alpha Fund returned 8.9% over the quarter, meaning it outperformed both the MSCI AC World Index, which returned 3.4% and its average peer in the IA Flexible Investment sector which returned 2.3%. This performance places the Fund in the top decile for the period under review*.

 

After a tumultuous start to the year, markets were comparatively calmer in the third quarter of the year. Despite the resurgence in Covid-19 in some parts of the world, Western economies have started showings signs that they are on the road to recovery. Similar to the previous quarter, this has been driven by a combination of reduced uncertainty around the trajectory and effects of the Covid-19 outbreak, aforementioned early signs of solid economic recovery and continued Government and Central Bank stimulus in particular from the US Federal Reserve. US equities continued to recover from the sharp sell-off in the first quarter of the year and indeed surpassed previous highs that were seen in February before COVID-19 hit. The market continued to take solace from the supportive monetary and fiscal stimulus provided by the Federal Reserve and US government as the US economy gets back on its feet. The rally was also fuelled by the relatively contained rise in hospitalisations and fatalities despite a surge in new COVID cases in July in the Sunbelt states.

As per previous quarters, the Fund benefited from its exposure to technology stocks once again. Technology companies that enable businesses to maintain effective remote workforces, improve digital efficacy and drive operational improvements are showing to be consummate winners, providing growth in a low growth world that rewards long duration assets due to depressed interest rates. Other technology companies that contribute to this rising digital economy by providing ecommerce solutions (either directly or enabling others) providing hardware, software tools for new digital projects all stand to benefit as well. We have seen that Covid-19 has not only accelerated the uptake of these long-standing trends, but likely also increased their long-term scale.

The Fund’s holdings in Zoom Communications was the strongest driver of returns are a stock level. The company continues to benefit from the increase in the number of people working from home during the coronavirus pandemic. Nvidia was once again a strong contributor to the outperformance of the Fund in the third quarter. The company continues to benefit from providing the semiconductor hardware necessary to sustain the rise in digital solutions. Furthermore, they continue to build on their dominance in GPU design and its recent acquisition of Mellanox to provide the high end equipment for the data centres the cloud infrastructure is built on. The possible upcoming acquisition of ARM for a seemingly bargain price should also increase Nvidia’s scope for success in the area.

The final notable driver of the Fund’s outperformance over the period under review was Alibaba. Strong performance can be attributed to China’s ongoing recovery after bearing the brunt of the initial Covid-19 outbreak. Alibaba is an obvious winner in China’s post-Covid economy, providing ecommerce solutions (reducing in-person shopping), digital payments (reducing the need for cash, a potential disease vector) and providing cloud services to Chinese businesses expanding their own digital solutions. Alibaba also has a 33% stake in Ant Financial, the Chinese fintech giant, that is looking to undergo a potential blockbuster IPO at a $200bn to $300bn valuation.

On the other side of the ledger, Alteryx was a key laggard in the portfolio over the quarter. An encouraging Q2 earnings report fell short of lofty expectations, causing a rather sharp decline in an already volatile stock. Fortinet was another underperforming stock over the period, this stems of the back of a long period of outperformance for the stock. The causes of the stock’s recent difficulties are hard to unpick, but there are concerns over the viability of the company’s flagship “on-prem” cybersecurity solution in a world where people increasingly work remotely and via public cloud. We however continue to believe that Fortinet’s product suite and cyber security platform leads the industry and will have a key role on this developing industry.

The outlook on equity markets appears to be steadier and more optimistic than it was even a few months ago. Plenty of risks remain, however. The underlying global economy, while recovering, remains in a difficult state, with low interest rates holding up asset prices despite poor near term prospects. COVID-19 has been at the forefront of news for most of 2020 and we expect this to continue, but we also expect that US election buzz will steal some of the limelight over the final quarter of the year.

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

 

Sep-20

Sep-19

Sep-18

Sep-17

Sep-16

Liontrust Global Alpha C Acc

35.1

1.1

20.5

23.9

7.6

MSCI AC World

5.3

7.3

12.9

14.9

30.6

IA Flexible Investment

0.9

3.2

5.4

10.5

16.5

Quartile

1

3

1

1

4

 

*Source: FE Analytics as at 30.09.20

 

**Source: FE Analytics as at 30.09.20

 

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.

Wednesday, October 21, 2020, 8:59 AM