Liontrust Global Income Fund

August 2019 review

The Fund returned -2.4%* in sterling terms in August compared with a -2.5% average return from funds in the IA Global Equity Income sector.

 

The Fund’s most recent income distribution was announced on 30 June 2019, taking the Fund’s 12 month income yield to 5.0%. The Fund targets an income level in excess of the yield on the MSCI World Index. The index yielded 2.7% over the same period.

 

European stocks joined the global equity slump as US-China trade tensions weighed on sentiment once again. Trump announced at the beginning of the month that the US would impose a 10% tariff on US$300bn worth of Chinese imports on 1 September. The following day the Chinese renminbi fell to its lowest level against the US dollar since February 2008, resulting in accusations of currency manipulation from the US and fears that a currency war could add to trade woes. Trump added fuel to this fire by continuing his attacks on the Federal Reserve for keeping the dollar too high.

 

As the month wore on, Trump stated that tariffs would be delayed on around US$155bn worth of consumer goods until December with the aim of reducing the impact on consumers ahead of Christmas. However, he later raised the tariff rate to 15% and warned US companies to exit the Chinese market. China stated that it will retaliate with “necessary countermeasures” and commented that the US had seriously violated the agreement struck by the two countries in the Osaka G20 meeting. 

 

As has been the case in previous episodes of US and China trade tensions, defensive assets benefitted. Gold is an obvious illustration of this, with the metal hitting its highest level for over six years. It was also apparent in equity market sector trends; the MSCI World Index fell 1.5%, with utilities (+3.8%), real estate (+3.0%) and consumer staples (+2.3%) the best performers in sterling terms. Energy (-6.9%), financials (-4.7%) and materials (-3.5%) experienced the worst of the sell-off.

 

The escalation in US-China trade tensions caused commodity prices to come under pressure with iron ore and oil prices both experiencing declines. This weighed on the share prices of miner Anglo American (-10.4%) and oil and gas company Royal Dutch Shell (-12.3%).

 

Shell also released interim results which disappointed the market. The company said that lower oil, gas and liquefied natural gas prices as well as weaker margins in chemicals and refining resulted in a 26% decline in earnings (on a current cost of supply basis) and excluding exceptional items.

 

US retailer Target (+25.3%) confounded a weak sector backdrop to deliver solid growth in the second quarter of 2019. Comparable sales grew 3.4%, ahead of the consensus estimate of 3.0%, and has grown c.10% over the last two years, which the company said is the best result in over a decade. Target’s adjusted earnings-per-share (EPS) rose 20% to US$1.82, a record high. The group now expects full-year adjusted EPS to be between US$5.90 and US$6.20, up from prior guidance of US$5.75-US$6.05.

 

Amgen’s (+13.1%) shares rose after the biotechnology company revealed that it won a patent court case for its rheumatoid arthritis drug Enbrel. Rival Sandoz had challenged the patents as it aimed to launch its own version of the drug, but the US District Judge in New Jersey upheld the original patents. Enbrel is Amgen’s best-selling treatment, recording sales of US$1.36bn in the second quarter of 2019.

 

US data storage company Seagate Technology’s (+8.8%) fourth quarter trading update came in ahead of expectations. Diluted EPS was 86 cents, a touch higher than the consensus forecast of 84 cents, though this was a decline from the US$1.62 recorded in the previous year. Chief Executive Dave Mosley said global conditions had started to improve, particularly among cloud and hyperscale customers, as the company heads into its new financial year.

 

We sold the following holdings in August: Giordano International, King’s Town Bank and Simplo Technology. The Fund received an allocation of Nordea Group shares in lieu of a dividend from Sampo Group, which we then sold.

 

Positive contributors to performance included:

Target (+25.3%), Amgen (+13.1%) and Charter Hall (+9.7%).

 

Negative contributors to performance included:

Ashmore Group (-15.9%), Royal Dutch Shell (-12.3%) and Anglo American (-10.4%).

 

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

 

 

Jun-19

Jun-18

Jun-17

Jun-16

Jun-15

Liontrust Global Income I Inc

4.6

6.0

18.5

7.5

-0.8

MSCI ACWI High Dividend Yield

13.3

2.9

16.5

19.0

2.3

IA Global Equity Income

8.4

3.6

19.2

9.6

4.3

Quartile

4

2

3

3

4

 

*Source: Financial Express, as at 31.08.2019, 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 03.07.2019, 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. 

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.

Tuesday, September 17, 2019, 3:01 PM