Liontrust Global Income Fund

May 2018 review

The Fund returned 0.6%* in sterling terms in May compared with the 1.9% average return from funds in the IA Global Equity Income sector.


Trade tensions between China and the US eased for most of May, before being sparked again by Trump’s decision late in the month to move ahead with tariffs on US$50bn of Chinese imports. The US also announced that the EU, Canada and Mexico would be subject to tariffs, once again raising the prospect of retaliatory action. 


Momentum in oil prices continued with Brent oil surpassing US$80/barrel for the first time since 2014. The rise in May reflected a combination of Venezuela’s oil exports declining under the pressure of political and economic turmoil and the anticipation of Iranian crude sales slowing after the US withdrew from the nuclear deal.


In April, the Fund’s relative performance was aided by a poor return from the US market; the underweight position to the US is one of the Fund’s largest sources of active risk relative to the MSCI World Index. In May, this effect reversed as the US dollar strengthened by 3.5% against sterling. One of the side effects of dollar strength is often pressure on emerging markets assets, and this was the case in May: the MSCI Emerging Markets Index return of -0.2% lagged the MSCI World’s 4.2% gain. The prospect of capital outflows from emerging markets hit shares in specialist fund manager Ashmore Group (-10.6%), a holding in the Fund.


In Europe the market was captivated by developments in Italy. The country’s two leading parties looked close to forming a government before their candidate for finance minister was blocked by President Sergio Mattarella. This sparked concern that another election could be held where anti EU parties could gain even more power. Investors sold out of Italian debt and equities causing the Italian central bank to intervene and purchase bonds to stabilise the market. As political turmoil sent ripples of concern through the Eurozone, investors marked down European banks. ING Groep (-11.0%) was the portfolio holding most affected by this trend. Calm was restored towards the end of the month, as a deal to form a government again looked likely.


Two Hong Kong-based companies were prominent among May’s portfolio risers: Man Wah Holdings (+23.1%) and Giordano International (+15.0%).


Sofa manufacturer Man Wah Holdings released results for the 12 months to 31 March showing revenue growth of almost 30% to over HK$10bn. Increases in the prices of inputs such as steel, packaging and chemicals led to a gross profit margin squeeze from 41.9% to 37.3%. The company dominates the reclining sofa market in China with a 45% market share. China accounts for almost 40% of Man Wah’s sales after growth of 35% during the year as it increased its retail store network by 424 to 2,357. In addition to the network expansion, same store sales growth was 13% year-on-year. Sales conditions in its North America (+2.6% year-on-year) and Europe & Other (-1.9%) sales divisions were weaker. Man Wah declared a final dividend of HK12 cents a share, taking the FY2018 total to 26 cents.


Q1 sales at clothing retailer Giordano International rose by 13.4% to HK$1.46bn. The increase in gross profit was slightly less at 12.5% due to a late Chinese New Year which led to price promotions being in place for longer. Comparable store sales grew 8.5% and there was a net increase of 40 stores to take the network to 2,424. As with Man Wah, sales growth was driven by China. Giordano experienced a 29% increase in online sales in China and a 17% rise in physical store sales.


Agricultural commodity giant Nutrien (+15.0%) was created through the merger of PotashCorp and Agrium on 1 January 2018. The Canadian company leads the market in production of potash, nitrogen and phosphate. It recorded earnings before interest, tax, depreciation and amortisation of US$487m in the first quarter of 2018, which was reduced to a US$1m net loss by merger-related costs. Additionally, the quarter was affected by a late start to the spring season in North America. But Nutrien expects a strong second quarter in terms of demand and prices for its crop nutrients and has raised its full-year 2017 earnings per share guidance from US$2.20 a share to US$2.60.


Shares in Philip Morris CR (-11.3%), the Czech cigarette business, fell in April as part of a global tobacco sell-off triggered by a statement from parent company Philip Morris International. It warned that growth in alternative devices such as vaping and eCigarettes are likely to be insufficient to replace declines in cigarette sales. The share price slide continued into May.


Further implementation of the portfolio’s annual restructuring saw Man Wah Holdings and Hopewell Highway Infrastructure sold.


Positive contributors to performance included:

Man Wah Holdings (+23.1%), Nutrien (+15.0%) and Giordano International (+15.0%)


Negative contributors to performance included:

Philip Morris CR (-11.3%), ING Groep (-11.0%) and Ashmore Group (-10.6%)


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








Liontrust Global Income I Inc






IA Global Equity Income













*Source: Financial Express, as at 31.05.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.03.2018, 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. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.  The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation.


This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, June 11, 2018, 9:24 AM