Liontrust Global Dividend Fund Fund

August 2021 review

The Liontrust Global Dividend Fund returned 1.3% in August. The MSCI World Index comparator benchmark returned 3.5% and the average return in the IA Global Equity Income sector, also a comparator benchmark, was 2.7%.

As Covid-19 concerns subside in India, HDFC Bank (+14.2%) has benefited from an improving economic backdrop. The Indian bank continues to take domestic loan market share, rising from 6.2% only five years ago to 10.9% last year. Importantly, HDFC has maintained strong asset quality during the crisis, and improved its contingency buffers (which remain unutilized). We expect the pace of loan market share gains by HDFC to remain strong, given its strong funding franchise and expansion into interior India. These characteristics will drive strong dividend growth over the next five years and position the company to benefit as economic activity rebounds after a difficult 18 months.

In June, a long-term holding of the Fund, Brookfield Asset Management (BAM), spun off economic interest in Brookfield Reinsurance Partners (+13.9%). The spin off entitled one share of Brookfield Reinsurance for every 145 shares of BAM – from the outset heavy institutional selling over the first two weeks of trading enabled us to easily build a position at very attractive prices. Brookfield Reinsurance was created to take advantage of the spread between financial debt securities and real assets – for instance, the yield achieved from holding government debt or investment grade credit versus infrastructure investing.

The mismatch that ranges between 300 to 400 bps enables Brookfield Reinsurance to solve the mismatch issue between long-date liabilities for pension plan owners and the returns Brookfield can achieve. Post the spin out, the CEO of BAM took a 10% stake in the Reinsurance company and started an acquisition led strategy to consolidate the insurance/pension industries back book with the announcement of their first acquisition of American National for $5bn. What we expect is the first of many acquisitions as the company takes advance of the mismatch. 

Alibaba (-11.6%) continues to suffer from increased regulatory scrutiny from Chinese officials. The mounting pressure is focused on Alipay, which Alibaba owns a 30% stake, who is disintermediating the Chinese financial services sector. This digital first financial services company has completely upended the slow-moving incumbents by providing “pay without card”, “buy now pay later”, and investment services with low friction costs to its already large customer base acquired through its relationship with Alibaba. We expect the government to reduce Alipay’s market power to level the playing field against incumbents and new upstarts but longer term we anticipate Alipay to emerge stronger due to the level of inefficiencies in the Chinese financial system.

We expect the volatility in Alibaba’s stock to persist but remain positive on the longer-term fundamentals of the company. Given the increased volatility of the stock price, we have taken advantage of the recent bounce and reduced our position to 2.4% so that one individual stock does not drive the performance of the portfolio. We still see its leadership position in Chinese e-commerce, emerging outbound e-commerce platform, entertainment, and cloud services as incredible difficult to replicate assets positioned to benefit as Chinese economic growth drives middle class prosperity.

Amadeus (-5.8%) stock price remains under pressure after its significant bounce around this time last year – now having retraced all its gains after the vaccine bounce. However, over the last 12 months the company has gone from strength to strength and is now ramping up efforts to gain market share from beleaguered competitors. For instance, the company has just won a large Etihad contract from Sabre for its full suite of services. Importantly, the company has extracted €500m of fixed costs out of the core business over the last 18months, meaning as international boarders reopen the company will return to pre-Covid profitability at revenues significantly below 2019 levels. The catalysts we are looking for include improving international travel, contract wins, and deployment of €2bn excess cash on its balance sheet.

Lastly, Intuit (+7.9%) once again has surprised the market and announced a new acquisition set to extend its leadership position in small-to-medium enterprise productivity software. The company started with accounting software that removes the need for small businesses to hire accountants. Then it bolted on Credit Karma that enables the company to offer credit evaluation scores for key customers and suppliers. And now, the $14bn acquisition of Mailchimp accelerates the company’s ability to achieve its goal of becoming an AI-driven expert platform. We see this as an excellent acquisition that gives the company key tools to enable small businesses to get, engage, and retain customers to grow and run their businesses.

Positive contributors included:

HDFC Bank (+14.2), Brookfield Reinsurance (+13.9%), Zurich Insurance (9.8%) Alphabet (+8.5%) and Intuit (+7.9%).

Negative contributors included:

Alibaba (-11.6%), Ping An (-10.5%), LVMH (-6.5%), Visa (-6.0%) and Amadeus (-5.8%).

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

 

Jun-21

Jun-20

Jun-19

Jun-18

Jun-17

Liontrust Global Dividend

26.5

9.9

17.2

8.8

13.3

MSCI World

24.4

5.9

10.3

9.3

21.6

IA Global Equity Income

21.2

-2.6

8.4

3.6

19.2

Quartile

1

1

1

1

4


Source: FE Analytics as at 30.06.21, C Accumulation share class performance. Quartile performance rankings as 30.06.21, generated on 07.07.21

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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.

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.

Thursday, September 16, 2021, 9:37 AM