Liontrust Global Dividend Fund

Q3 2021 review

The Liontrust Global Dividend Fund returned -1.3% in the third quarter, compared with 2.5% from the MSCI World Index and 1.7% from the IA Global Equity Income sector (both comparator benchmarks)*.

 

BP (+23%) was the top performer over the period, as the company benefited from crude prices continuing to rise over the quarter, hitting new highs in September. An improving supply side dynamic in the oil and gas industry is not the reason we invested in BP, but we expect this to significantly aid BP’s shift to an integrated energy company. BP’s business transformation since Bernard Looney has taken over as CEO in 2020 is breath-taking and sets the company up to successfully achieve its transformation.

Importantly, the company has moved quickly to dispose of non-core assets, boosted efficiency efforts, and is investing for growth in key renewable infrastructure. This approach is like transformations undertaken by other incumbents in different industries like Disney and Volkswagen with the speed and leadership critical to successful execution. BP is leading the way within the integrated Oil and Gas behemoths and as it stands the others will be left behind as the first mover will be able to make use of distribution and scale advantages but maybe those following could struggle.

Costco (+17%) is an example of a Covid winner who is winning share of cost-conscious consumers. It reported an increase in sales of 17% yoy for the month of June and was one of the Fund’s top performers over the quarter. Costco operates an international chain of membership warehouses, that carry quality, brand-name merchandise at substantially lower prices than competitors.

As a consumer you can have confidence that, at Costco, you get the best price. By paying a $60 annual fee, Gold Star members gives you access to Costco warehouses where you enjoy unmatched value for money. It’s a business model that pools buyers together alongside an efficient supply chain to drive prices lower and keep them there, clearly a part of the customer proposition consumers are excited about.

Also among the top performers for the quarter was Constellation Software (+11%), a company we have held in the Fund for over three years. Constellation is a Canadian software conglomerate that acquires and holds vertical market software (VMS) companies. Rarely selling, the company is a perpetual owner of over 500+ VMS companies ranging from library software to marina management.

Mark Leonard started Constellation with $25m in 1995 raised from investors and is recognised as one of the best capital allocators and compounders of capital over the last two decades as Constellation’s market cap hit $31bn earlier this year. In fact, since it went public in 2006, it has reliably compounded returns at 30%+ a year and we don’t expect the company to slow down.

The Chinese escalation in regulatory pressure on Chinese educational sector and, more broadly on China’s technology sector, hampered the stock prices of Tencent (-19%) and Alibaba (-34%). The latter continues to suffer from increased regulatory scrutiny from Chinese officials. Over the quarter, mounting pressure was 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.

With iron ore falling over concerns of weakening demand from Chinese construction sector, the outlook for Rio Tinto (-15%) worsened meaning the company was a notable detractor over the period. In particular, the de-leveraging of the housing construction sector in China will have a significant impact on demand for steel over the next couple of years. We see, new regulations, particularly on balance sheet debt levels, imposed on the Chinese construction sector as leading to more sustainable long-term growth but materially impacting demand for steel over the shorter to medium term. In response, we exited this position during the month with the company returning to our watchlist while the sector repairs itself after many years of unconstrained activity.

We remain positive on the longer-term fundamentals of the company and given the increased volatility of the stock price, we have taken advantage of the recent bounce and reduced our position 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.

 

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

 

Sep-21

Sep-20

Sep-19

Sep-18

Sep-17

Liontrust Global Dividend C Acc GBP

21.2

8.1

15.7

12.4

9.4

MSCI World

23.5

5.2

7.8

14.4

14.4

IA Global Equity Income

21.6

-3.9

7.0

7.0

12.3

Quartile

2

1

1

1

3

 

*Source: FE Analytics as at 30.09.21

 

**Source: FE Analytics as at 30.09.21. Quartile generated on 06.10.21

 

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. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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 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

 

This information 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, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Friday, October 22, 2021, 2:03 PM