Liontrust Global Innovation Fund

Q4 2020 review

The Liontrust Global Equity Fund returned 5.5% over the quarter, versus the MSCI AC World Index which returned 8.5% and IA Global Equity sector average of 9.6%*.


The quarter was not short of major events. While in the short-term, economic activity remains heavily subdued by Covid-19 and cases and deaths sadly continue to rise, Joe Biden’s presidential election win and the arrival of multiple, highly effective vaccines mean that there is now light at the end of the tunnel. The growing prospect of an economic return to normality – though the path is sure to contain various twists and turns – favoured stocks during the quarter worst hit so far during the crisis, as it should. Therefore, we saw strong performance for many high quality cyclically exposed companies and, alongside them, also many relatively financially vulnerable companies.

We made two types of changes to the portfolio during the quarter. Firstly, we reduced some of our holdings in technology companies where valuations have become quite demanding, partly because the stocks have delivered very strong returns this year. Secondly, we re-invested the cash in excellent innovative companies that are either less technologically-oriented – such as Planet Fitness and Costco – or have lagged other disruptors this year owing to their cyclical exposure, such as Tradeweb Markets and Amadeus.

The biggest single contributor to the Fund’s return during the quarter was Walt Disney. At its annual investor day in early December, Disney updated investors on its plans to accelerate growth through its television streaming business, guiding for strong subscriber growth and aggressive investment in new content over the next few years, which would put it in the big league with Netflix. This was greeted very warmly by the market and we agree. Disney’s clear inherent strengths in content production, its back catalogue and cross-monetisation through merchandise and its parks make it a strong competitor in the new world of TV streaming and it makes good sense to drive the business wholeheartedly in that direction.

The stock market is currently strong and perhaps worryingly so. Nevertheless, while one must always be careful not to try too hard to justify stock prices as he or she finds them, there do appear to be two factors that can go some way towards an explanation, despite the likely presence of long-term scarring effects of the Covid recession. First, the stock market is not a balanced representation of the economy. Around a third of the US and global stock market these days is tech, broadly conceived, which has been largely unaffected by the crisis and indeed has been presented substantial opportunities by it. Take it out and the rest of the US and global market is actually still down about 10% from its February peak. Second, the approximately 1% decrease in long term real interest rates – delivered by central banks as part of the enormous policy support programme that has underwritten the economy this year – has acted directly upon the stock market by lowering the rate at which investors discount business’s future cash flows. I calculate that this effect has probably raised the ‘fair value’ of stock prices by about 15%.


Putting these two things together tells us that the global stock market may well have reached new highs, but this does not necessarily mean that investors are complacent about the potentially lasting economic effects of Covid-19. Indeed, they are essentially pricing in around a 25% reduction in the permanent cash flows of non-tech businesses. That seems sufficiently sober, if not even outright gloomy, thinking about it in a long-term context.


What of growth prospects in 2021 and beyond? While challenges will remain for many businesses, there are three substantial positives on the horizon that investors should embrace. President Trump’s departure from the White House will likely boost global co-operation and growth as we emerge from the Covid recession and a Democrat controlled government is likely to support the recovery with expansionary fiscal policy. Central banks are likely to continue to provide a high degree of support to the economy, particularly as they will be keen to keep interest rates under control given the huge quantities of lending in which they have engaged. Moreover, households have built up significant savings during lockdown, a meaningful portion of which they may spend next year. Larry Summers points out that household disposable income is currently around 8% above where any reasonable pre-Covid forecast would have put it. Cash in hand plus new-found optimism could be a strong mix.  


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








Liontrust Global Equity C Acc GBP












IA Global













*Source: FE Analytics as at 31.12.20


**Source: FE Analytics as at 31.12.20


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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.


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.


Monday, January 25, 2021, 3:54 PM