Liontrust Global Equity Fund

Q1 2020 review

The Liontrust Global Equity Fund returned -6.7%* over the quarter, outperforming both the MSCI AC World Index which returned -16.0% and the IA Global Equity sector average of -15.4%.

 

The emergence of the COVID-19 pandemic during the quarter gave rise to extraordinary stock market conditions. Between 19th February and 23rd March, global stock prices (as measured by the MSCI AC World Index) collapsed by 26% priced in GBP and 33% priced in USD – the fastest such decline recorded – as the enormous immediate economic impact of the social distancing measures required to fight the pandemic became apparent to investors. Thereafter, until the end of the quarter, global stocks partially recovered as the governments and central banks of major advanced economies stepped in to provide liquidity to severely stressed financial markets and unprecedented support to the real economy.

Much of the global economy currently sits in a significantly shut-down state while social distancing measures are in place to fight the virus. While government and central bank policies have built a bridge to a recovery in economic activity when social distancing measures are relaxed, the strength of the recovery – and outlook for the stock market – is, in the view of the Liontrust Global Equity team, critically dependent on three factors. First, Western governments must put in place an infrastructure for living with the virus at an acceptable level of risk while running the economy at a decent level of activity until a vaccine arrives. This means successfully suppressing the virus through a scaled-up testing and tracing regime while protecting the vulnerable, as opposed to continuing with blanket shutdowns for the foreseeable future. Numerous East Asian governments have already established such an infrastructure, but so far Western governments have generally failed to do so. Second, when the time is appropriate, macroeconomic policy must swiftly move from ‘defence’, in the sense of tiding over the economy during the shut-down, to ‘attack’, in the sense of delivering significant monetary and fiscal stimulus to kick-start demand. Third, and highly dependent on the first two factors, households and businesses must feel confident enough to increase spending again reasonably quickly from current extremely low levels, rather than engage too much in building up precautionary savings in the face of ongoing economic uncertainty. Some of the key leading economic indicators to monitor during the coming months in this regard will be consumer confidence, unemployment, household saving rates and business investment intentions.

The Fund’s outperformance relative to its benchmark and the average of its peer group during the quarter was achieved through a combination of outperformance both before the onset of the crisis and during it. Between the start of the quarter and Feb 19th, when the stock market peaked, the Fund returned 9.6%, relative to the benchmark return of 5.1% and sector average return of 4.6%. From Feb 20th until the end of the quarter, the Fund returned -14.8%, relative to the benchmark return of -20.0% and sector average of -19.4%.

The Fund benefited during the quarter from its exposure to companies with robust financial positions and strong structural growth trajectories. While the currently unfolding economic challenges are significantly impacting the vast majority of companies, those with adequate financing to weather the storm and a growth trajectory to return to on the other side are in an advantageous position. As such, during the quarter, growth and quality factors, to which the Fund is positively exposed, generally outperformed the value factor, to which the Fund is negatively exposed.

The Fund also benefited from its strategy of investing in disruptive innovating companies across each sector of the economy. It is early days to consider the longer-term effects of the pandemic and economic fallout, however, it is plausible that some existing trends towards the greater use of digital technologies, such as internet-based communication, will accelerate, benefiting disruptors. In keeping with this some of the strongest performing holdings in the Fund during the quarter were major technological disruptors and enablers of disruption, including Amazon, Microsoft, Tencent and Nvidia. The largest detractors to the Fund’s performance were banks JP Morgan and Silicon Valley Bank, which suffered from a fall in bond yields as economic growth and inflation expectations collapsed.          

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

 

 

Mar-20

Mar-19

Mar-18

Mar-17

Mar-16

Liontrust Global Equity C Acc GBP

4.7

5.0

13.0

26.1

-12.4

MSCI AC World

-6.7

10.5

2.4

32.2

-1.2

IA Global

-6.0

9.0

2.7

28.6

-3.4

Quartile

1

3

1

3

4

 

*Source: FE Analytics as at 31.03.20

 

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.

Thursday, April 23, 2020, 3:31 PM