Liontrust Global Income Fund

February 2019 review

The Fund returned -0.1%* in sterling terms in February compared with 1.7% average return from funds in the IA Global Equity Income sector.


The 1.9% rise in the MSCI World index was supported by the ongoing easing of trade tensions between the US and China, which included speculation that the increase in tariffs scheduled for 1 March would be suspended for another 60 days.


As well as de-escalation of trade worries, the other factor providing market momentum recently has been key central banks’ softening of rhetoric on monetary tightening. Minutes from January’s meeting of the US Federal Reserve’s Open Market Committee confirmed that it is considering a pause to Quantitative Tightening later in 2019. Comments regarding the path of interest rates seemed to straddle both sides of the fence – some members noting that only higher inflation would necessitate rate rises, with others instead indicating that rate hikes would be appropriate if the economy progressed as expected during the year. Either way, it did not give strong backing to the Fed’s prior ‘dot plot’ for two rate rises in 2019.


While interest ahead of Trump’s Vietnam summit with North Korean President Kim was muted – especially when compared with last year’s meetings between the pair – some late-month volatility was triggered by the abrupt termination of talks which had floundered on the second day. The latest in a seemingly interminable series of Brexit developments saw Theresa May agree to votes on ‘no deal’ and an extension to the 29 March exit date if her revised deal fails to win support in an earlier vote.


The technology sector lead the MSCI World’s gains in February, rising 5.4% in sterling terms. Another typically cyclical sector, industrials, was the next strongest sector, gaining 3.7%. Only real estate (-0.7%) and communications services (-0.3%) ended in negative territory.


The Fund had some exposure to communication services weakness as its holdings in Spark New Zealand (-10.4%) and Vodacom (-9.9%) suffered sizeable falls. US real estate investor Newmark Group (-11.5%) was also heavily affected by sector weakness, despite issuing 2018 results showing strong rises in revenues and profits and predicting further growth in 2019.


However, Swedbank (-21.7%) was the Fund’s biggest detractor as allegations of money laundering emerged. The company acted swiftly to appoint Forensic Risk Alliance as an external investigator, amid speculation that the bank may be caught up in the money laundering scandal that has engulfed Danske Bank. With Swedbank’s management unable to give any reassurance on the validity or extent of the allegations, we chose to sell out of the Fund’s position in the stock.


Better news came elsewhere in the Fund’s financials sector holdings as Taiwan’s King’s Town Bank (+11.2%) released 2018 results which were well received. The bank grew loans 6.5% year-on-year to NT$155bn by focusing on the small and medium enterprise sector. Fee income and interest income grew by 4.0% and 4.5% respectively.


Assets under management (AUM) at Gluskin Sheff & Associates (+13.1%) shrunk by US$700m to US$8.2bn in Q4 2018: US$592m due to market weakness and US$108m as the result of withdrawals. Despite the negative headline trends, the results were better than expected as analysts had already factored market weakness into their AUM forecasts. The company was able to implement an increase in average management fees from 1.20% a year ago to 1.24%, which helped support profits as assets fell. Quarterly earnings per share of C$0.24 were ahead of analyst consensus forecast of C$0.21.


Shares in Barratt Developments (+11.2%) had already risen sharply in January and early-February interims provided more impetus. Following a 4% increase in home completions (to 7,622), the company’s revenues rose 7% to £2.13bn. With operating margins also expanding by 130bp to 19.2%, operating profit rose 15% to £409m. Barratt maintained its guidance for the full-year period ending 30 June 2019 and announced its intention to pay special dividends totalling £137m in both November 2019 and November 2020.


Following last month’s profit warning, Air New Zealand (-14.4%) softened further on the release of interim results. Profit before tax dropped 35% to NZ$211m as 7% revenue growth was more than offset by a 28% increase in fuel and other costs. The company stated that it is reviewing its network, fleet and cost base to reflect a slowing of the New Zealand air travel market. It maintained the revised guidance given in January of NZ$340m-NZ$400m (down from NZ$425m-NZ$525m), which was reduced due to negative trends in forward bookings as well as issues with Rolls-Royce engines.


Positive contributors to performance included:

Gluskin Sheff & Associates (+13.1%), King’s Town Bank (+11.2%) and Barratt Developments (+11.2%).


Negative contributors to performance included:

Swedbank (-21.7%), Air New Zealand (-14.4%) and Newmark Group (-11.5%)


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








Liontrust Global Income I Inc






IA Global Equity Income













*Source: Financial Express, as at 28.02.2019, 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 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.


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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 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.

Wednesday, March 20, 2019, 1:34 PM