Liontrust Global Equity Fund

Q3 2020 review

The Liontrust Global Equity Fund returned 8.3% over the quarter, outperforming both the MSCI AC World Index which returned 3.4% and IA Global Equity sector average of 4.2%*.

 

While we continue to closely monitor and seek to understand the ongoing and unfolding implications of the COVID crisis, we remain focused on the long-term opportunities presented by the businesses in which we invest and on their resilience in the face of major economic uncertainty in the shorter-term. Since the start of the year, the Fund has returned 25.2%, compared to its MSCI ACWI benchmark’s return of 3.9% and the IA Global sector average return of 5.2%.

 

We run the Fund on the basis of our disruptive innovation investment philosophy, whereby we invest in businesses bringing new products and business models to market in each industry and avoid businesses that are likely to be displaced by such innovation. One of the sources of the Fund’s outperformance this year has been the acceleration, due to the COVID crisis, of several disruptive trends (such as e-commerce and digitalization) to which our holdings are exposed. However, we believe disruption is currently accelerating for strong secular reasons other than the COVID crisis (e.g. the growing use of data and artificial intelligence in business), which is driving the underlying outperformance of our businesses, as exhibited by strong outperformance prior to the crisis also.

 

Furthermore, the Fund’s process selects only businesses with acceptable levels of financial risk coupled with strong growth prospects. These businesses have so far proven well positioned to weather the current macroeconomic shock resulting from the COVID crisis and we believe are likewise well positioned to weather the likely persistent economic challenges ahead. Our biggest contributors to outperformance in Q3 were Nvidia, Alibaba and Nike. Our biggest detractors were Mandarin Oriental, Tencent and Enel.

 

Looking ahead, the short-term investment outlook is likely to be influenced by the re-acceleration of COVID cases currently taking place, potential progress on vaccines and the US election. Each of these ongoing developments has the potential to shape economic activity in the months ahead in significant and unpredictable ways. We run the Fund with a focus on the long-term business strategies of the companies in which we invest and their resilience in the face of deep economic uncertainty.

 

Over the long term, we believe the key macroeconomic variables over the next cycle will be shaped by two factors: accelerating disruption and persistent hangover effects of the current crisis. Regarding the first factor, we expect strong productivity growth due to innovation, particularly the roll out of AI technologies across the economy. However, we expect this productivity growth to be quite narrowly captured by a subset of innovative and adaptive companies (disruptors and embracers, in the terminology of our Fund), while many disrupted companies will lose market share and continue to see poor productivity gains.

 

Regarding the second factor, we expect an important legacy of the current crisis to be persistent low real interest rates as governments supress borrowing costs to manage the historically very high government debt burdens currently being incurred due to the crisis.

 

In our view, the combination of these two macroeconomic factors – highly unequal benefits from AI across companies and low interest rates, which put the focus in equity valuation on long term cash flows – are likely to favour the share prices of companies on the right side of disruption and punish those on the wrong side across the economy and market over the coming years.

 

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

 

 

Sep-20

Sep-19

Sep-18

Sep-17

Sep-16

Liontrust Global Equity C Acc GBP

29.9

2.0

16.5

20.4

14.3

MSCI AC World

5.3

7.3

12.9

14.9

30.6

IA Global

7.2

6.0

11.6

14.9

26.1

Quartile

1

4

1

1

4

 

*Source: FE Analytics as at 30.09.20

 

**Source: FE Analytics as at 30.09.20

 

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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.

Wednesday, October 21, 2020, 8:59 AM