Liontrust Global Income Fund

April 2020 review

The Fund returned 8.0%* in sterling terms in April. The MSCI ACWI High Dividend Yield Index comparator benchmark returned 6.1% and the average return from funds in the IA Global Equity Income sector – also a comparator benchmark – was 7.9%.


Global equity markets staged a sharp rally in April to regain some of the ground lost in the previous month. The improvement in investor sentiment was helped by some signs that the Covid-19 pandemic had passed its peak in new cases and deaths in some of the worst hit countries,


Lockdown restrictions largely remained in place, extending the nosedive in economic activity. Because the duration of these measures remains unknown, the scale of the macroeconomic setback is also uncertain, but Q1 GDP releases gave a taste of what is to come. April data releases showed quarter-on-quarter economic contractions of 9.8%, 4.8% and 3.8% in China, the US and eurozone respectively. For most regions, current restrictions were only in place for the latter stages of the quarter so the slowdown is sharper than these figures show.


The oil market gave perhaps the clearest illustration of this immediate slump in activity, with the US WTI contract for physical delivery in May entering negative territory (falling as low as -US$40 a barrel) as it approached expiry in mid-April. The lack of demand or inventory storage capacity only had such an extraordinary effect on the very short end of the oil futures curve; as the one-month contract rolled into June delivery, the price recovered to US$18.8 a barrel by month end.


Nevertheless, the energy sector of the MSCI World index was up 14.5%, lagging only consumer discretionary (+15.3%). Most oil companies have some hedging in place on near-term sales and share prices will be affected by longer-term oil expectations, reducing exposure to April’s unusual price action. All sectors of the MSCI World Index moved higher in April (in sterling terms).


An energy holding was one of the Fund’s best performers during the month. Ahead of the release of Q1 results, Lundin Energy (+34.1%) announced details of US$340m in extra credit facilities secured to provide a buffer against current oil market uncertainty. The results themselves gave more positive news on liquidity, showing US$400m free cash flow generation and a reduction in net debt to US$3.7bn from US$4.0bn at the end of 2019. The company increased its full year production guidance by about 6% to a range of 160 – 170 million barrels of oil equivalent per day. This is primarily due to faster than expected ramp up at its Johan Sverdrup field.


However, elsewhere within the Fund’s sector exposure, both Total (-8.9%) and Royal Dutch Shell (-6.6%) lost ground. Shell’s decision to cut its dividend for the first time in 75 years grabbed the attention of income investors. The cut to its quarterly payment was one of a number of measures designed to protect cash flow in the face of a demand outlook beset by uncertainty. It is reducing operating expenditure by US$3-4bn versus last year, cutting capital expenditure by US$5bn and ceasing its share buyback programme.


In March, Total outlined its resilience to weak oil prices via a breakeven price of around US$25 a barrel and its low gearing ratio of 16%. It also moved to protect free cash flow by scaling back capex plans by 20%, trimming operating costs and suspending its share buyback programme.


Generally speaking, those stocks that have fallen the hardest during the Covid-19 crisis bounced the most in April. Air New Zealand (+61.9%) shares bounced off their lows on hopes that a lift on travel restrictions may be within sight. New Zealand’s government moved to gradually lift some of its lockdown restrictions during April. Merlin Properties (+20.8%) was another holding to stage a recovery from heavy March losses.


This year’s fall in the price of industrial commodities has affected Swedish metals miner and smelter Boliden (+12.8%). Q1 operating profit at its mines dropped 75% to SKr318m. Some of the fall was offset by a 30% rise in smelting due to higher volumes and improved prices. However, April saw some recovery in metals prices – copper was 8% higher – which was mirrored in Boliden’s share price.


Whilst portfolio performance has been disappointing this year for unit holders – combined with the possibility of dividend yields being under threat across the market as the economic setback created by national lockdowns takes hold – we are optimistic about this strategy’s prospects. Recently, two distinguished members of the investment community – Clifford Asness of AQR and Rob Arnott of Research Affiliates – have separately published research pointing to the once-in-a-generation opportunity for value-based strategies. Value as a strategy has under-performed the market for many years of late, culminating in very poor results in the first quarter of this year when the sell-off of value stocks was particularly extreme. As a result, the strategy has become historically extremely cheap when measured against average valuations. Indeed, Cliff Asness has shown how almost any way that you look at the strategy, it resides in the cheapest percentile of its historic valuation. Work by Asness and Arnott is confirmed by our own internal research which shows that today investors are being paid a historically high premium to accept the risk of a value-based strategy. This points to a compelling opportunity for this fund which – owing to the high yield focus – has always been overwhelmingly exposed to value as a strategy. As we carry out our annual review of stocks, we are mindful to ensure that the portfolio continues to remain exposed to the stocks most likely to benefit from a recovery in the value strategy.


Positive contributors to performance included:

Air New Zealand (+61.9%), Lundin Energy (+34.1%) and Merlin Properties (+20.8%)


Negative contributors to performance included:

Total (-8.9%), Royal Dutch Shell (-6.6%) and Deutsche Pfandbriefbank (-5.7%)


The Fund has an income target benchmark of the yield on the MSCI World Index. The Fund’s most recent income distribution was announced on 31 December 2019. Its distributions over the 12 months to 31 December 2019 – expressed relative to the Fund’s price on 31 December 2018 – give a 12 month yield of 5.8%. The MSCI World Index yield on the same basis was 2.2%.


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








Liontrust Global Income I Inc






MSCI ACWI High Dividend Yield Index






IA Global Equity Income













*Source: Financial Express, as at 30.04.20, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.03.20, total return (net of fees and income reinvested), bid-to-bid, primary class.


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 Cashflow Solution team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Liontrust European Growth Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the respective portfolio. The Liontrust Global Income Fund's expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. 


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.

Friday, May 15, 2020, 1:26 PM