Liontrust Global Income Fund

March 2020 review

The Fund returned -18.2%* in sterling terms in March compared with a -9.6% return by the MSCI ACWI High Dividend Yield Index and the -11.7% average return from funds in the IA Global Equity Income sector.


Financial markets experienced sharp declines reminiscent of the 2008 Global Financial Crisis (GFC) as coronavirus cases continued to escalate around the world. A number of countries entered lockdown and the human and economic costs of the virus began to mount. Trading was extremely volatile; the VIX “fear index” rose to its highest post-GFC level, sharp downward moves forced equity market circuit breakers into action and selling became indiscriminate.


In the MSCI World Index, the worst performing sectors were energy (-27.2%), financials (-20.0%) and real estate (-15.7%), whilst the most resilient were health care (-0.7%) and consumer staples (-2.1%).


Meanwhile, the sharp decline in oil prices (Brent crude -55%, hitting its lowest level since March 2002) put an additional strain on equities. This resulted from a combination of reduced demand during the coronavirus crisis and Saudi Arabia’s decision to ramp up production after OPEC and its partners failed to agree on measures to restrict output.


Having learned lessons from the GFC, central banks were quick to introduce emergency measures, including interest rate cuts, quantitative easing and liquidity support. Governments soon followed with huge fiscal packages aimed at supporting health care systems, businesses which have been materially impacted by the outbreak and individuals. These policies did steady markets from their initial panic, but until lockdowns are eased and businesses are open to operate as normal again, investors are likely to remain on edge.


Against this backdrop, value as a style underperformed which weighed heavily on the Fund given its high value exposure. Among the Fund’s holdings, travel companies were once again the hardest hit. Air New Zealand (-63.3%), Carnival (-59.7%) and International Consolidated Airlines Group (-54.4%) all added to their February losses as travel restrictions became more widespread. British Airways owner IAG said it has suspended all flights to Italy and China and reduced services to the rest of Asia. The company refrained from giving 2020 guidance due to the uncertainty of the virus but highlighted the strength of its balance sheet and steps to reduce operating expenses.


Financials was another area which came under intense selling pressure and the Fund’s overweight allocation to the sector presented a headwind, with heavy falls suffered by several holdings: Deutsche Pfandbriefbank (-43.5%), Genworth MI Cananda (-38.9%) and RMB Holdings (-35.8%).


Two of the portfolio’s risers played into themes that have emerged during the crisis. Health care stocks have been resilient as the world searches for a Covid-19 vaccine. Roche (+7.7%) is one such company working on this and, in March, it confirmed that it has initiated phase III trials of its coronavirus treatment and been given emergency use authorisation by the US Food & Drug Administration, which should significantly speed up tests.


Another theme has been the resilience of food retailers as shoppers flock to maintain essential supplies. Shares in Sweden’s Axfoods (+15.1%) benefitted.


Across global markets many companies announced the withdrawal of 2019 dividend proposals and/or the cancellation of potential 2020 dividends. For example, following recent recommendations by regulators such as the European Central Bank, banks and other financial companies announced the cancellation of dividends. While some uncertainty still exits regarding dividends across some holdings in the Fund, we would expect the already announced widespread dividend cuts to have a negative impact on the Fund’s final dividend for the current year and possibly dividends for next year.


Importantly, it is also worth noting that following the recent significant declines in equity markets, and particularly in value stocks, our indicator for Investor Anxiety (including valuation spreads) has now moved into very high territory. As historic evidence shows, this is typically a much more favourable environment for value stocks. We would expect this environment to be a more constructive backdrop for the future performance of the Fund, given the its high value exposure.


Positive contributors to performance included:

Axfood (+15.1%), Rio Tinto (+8.1%) and Roche (+7.7%). 


Negative contributors to performance included:

Air New Zealand (-63.3%), Carnival (-59.7%) and International Consolidated Airlines Group (-54.4%).


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 31.03.20, 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.


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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.

Thursday, April 23, 2020, 9:21 AM