Liontrust Global Smaller Companies Fund

Q4 2020 review

The Liontrust Global Smaller Companies Fund returned 16.2% over the quarter, outperforming both the MSCI World SMID Index and the IA Global sector, which returned 14.5% and 9.6% respectively*.

It is difficult to resist the attraction of ‘vaccine news provides a shot in the arm for markets’ as a review of the last quarter of a challenging year, offering hope of a better 2021.

We also saw the end of four-and-a-half years of Brexit negotiations and a promise of more traditional politics under US President-elect Joe Biden, potentially alleviating the trade wars that have hit sentiment. What recent events – particularly three doses of vaccine news – have allowed investors to do is recalibrate expectations for many companies, creating more certainty around valuations given the fact a return to normality is in sight.

2021 promises the end of three market-influencing factors, which could mean more clarity than has been the case for some time: the first is the transition from Trump to Biden, the second is a reduction in the impact of Covid-19, and the third is Brexit. This may help restore the disconnect between market hope and economic reality, which, for us, has continued to underpin – and undermine – surging equities.

 

We continue to focus on technology-related stocks or those companies utilising technology to gain a competitive advantage versus their industry peers. Technology companies that enable businesses to maintain effective remote workforces, improve digital efficacy and drive operational improvements are showing to be consummate winners, providing growth in a low growth world that rewards long duration assets due to depressed interest rates. Other technology companies that contribute to this rising digital economy by providing ecommerce solutions (either directly or enabling others) providing hardware, software tools for new digital projects all stand to benefit as well. We have seen that Covid-19 has not only accelerated the uptake of these long-standing trends, but likely also increased their long-term scale.

At the stock level, Cloudflare was the portfolio’s highest returning stock over the quarter. Cloudflare is a content delivery network and web security firm. The company provides its various services at the such a way that data gets moved out of central data centres and stored in servers that are closer to the end-users.

Its edge networking platform has been in high demand during the pandemic as both businesses and individuals shifted more of their everyday activity online. As a result, Cloudflare's already enviable growth rate held steady amid the peak of the crisis in the second quarter, and has accelerated since. 

Another stock that contributed to the Fund’s outperformance over the quarter was Rapid7. The firm is a provider of security data and analytics solutions that enable organizations to implement an active approach to cyber security. The company combines security data and analytics platform that provides solutions to cyber security that enables organizations to find and eliminate critical weaknesses and detect attacks in their information technology environments.

Finally, the Fund’s long time holding, Twilio, which provides a communications API platform for software developers, again performed strongly over the quarter. If you’ve received a text, call or email from a company through an app or webpage, it is likely that it used a Twilio plug-in solution. With the rising need for an online/virtual presence for all businesses, Twilio stands to benefit by providing the necessary tools that developers need to be able to provide this service.

We believe global small caps are also worth considering now because of their relatively cheap valuations, the fact that far fewer brokers follow them than mid and large caps and their potential for economic growth as we come out of this crisis.

 

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

 

 

Dec-20

Dec-19

Dec-18

Dec-17

Dec-16

Liontrust Global Smaller Companies C Acc GBP

48.0

20.1

2.2

25.0

2.8

MSCI World SMID Cap

12.2

21.9

-8.2

12.4

31.1

IA Global

15.3

21.9

-5.7

14.0

23.3

Quartile

1

3

1

1

4

 

*Source: FE Analytics as at 31.12.20

 

**Source: FE Analytics as at 31.12.20

 

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 Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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.

 

Monday, January 25, 2021, 3:54 PM