Liontrust Global Technology Fund

Q3 2020 review

The Liontrust Global Technology Fund returned 8.3% over the third quarter, versus the IA Technology and Telecommunications sector and MSCI World Technology Index respective gains of 6.8% and 6.9%*.

The third quarter of 2020 has seen modest gains for global equity markets. Similar to the previous quarter, this has been driven by a combination of reduced uncertainty around the trajectory and effects of the Covid-19 outbreak, early signs of solid economic recovery and continued Government and Central Bank stimulus in particular from the US Federal Reserve.

The technology sector continued its leadership as we begin to see the possible “Post-Covid” world take shape. 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.

The Fund’s top three performing stocks over the quarter were: AMD (+50%), Nvidia (+33%) and Alibaba (+31%). Alibaba’s performance can be attributed to China’s ongoing recovery after bearing the brunt of the initial Covid-19 outbreak. Alibaba is an obvious winner in China’s post-Covid economy, providing ecommerce solutions (reducing in-person shopping), digital payments (reducing the need for cash, a potential disease vector) and providing cloud services to Chinese businesses expanding their own digital solutions. Alibaba also has a 33% stake in Ant Financial, the Chinese fintech giant, that is looking to undergo a potential blockbuster IPO at a $200bn to $300bn valuation.

AMD and Nvidia continue to benefit from providing the semiconductor hardware necessary to sustain the rise in digital solutions. AMD in particular stands to benefit from seizing market share from a struggling Intel, while Nvidia builds on its dominance in GPU design and its recent acquisition of Mellanox to provide the high end equipment for the data centres the cloud infrastructure is built on. The possible upcoming acquisition of ARM for a seemingly bargain price should also increase Nvidia’s scope for success in the area.

Cloud based software service providers in the portfolio have also performed well over the quarter as they too look set to benefit from the accelerated uptake and increased scope of cloud solution in the Covid (and post Covid) economy. These include Salesforce (+26%), HubSpot (+15%), Pegasystems (+14%), ServiceNow (12%) and Zendesk (+11%) all of whom provide SaaS solutions at various stages of the sales/user journey for businesses, including sales targeting, customer experience, and customer support centre services.

The three largest portfolio laggards this past quarter were Alteryx (-40%), Fortinet (-18%) and DocuSign (-15%). Alteryx’s and, to a lesser extent, DocuSign’s poor performance in the portfolio was due to an unfortunately timed small starting position in each stock. In the case of Alteryx, an encouraging Q2 earnings report fell short of lofty expectations, causing a rather sharp decline in an already volatile stock. In absolute terms, these drops only impacted the portfolio by -13bps and -6bps for Alteryx and DocuSign respectively due to the small size of the cautious starting position.

The underperformance of Fortinet was more significant, however comes of the back of a long period of outperformance for the stock. The causes of the stock’s recent difficulties are hard to unpick, but there are concerns over the viability of the company’s flagship “on-prem” cybersecurity solution in a world where people increasingly work remotely and via public cloud. We however continue to believe that Fortinet’s product suite and cyber security platform leads the industry and will have a key role on this developing industry.

This past quarter we have made a number of portfolio changes as we see new developing opportunities emerge as we gain greater clarity on the trajectory of the digital economy in a post Covid world. Most recent additions reflect our belief in the growing demand and scope for (often cloud based) software solutions as well as the fantastic economics these companies enjoy. This includes new positions in Alteryx, Avalara, CrowdStrike, Datadog, DocuSign, HubSpot, Splunk, Zoom and Zscaler.

We have also exited positions in Disney, CME, IQVIA, Perspecta and Equinix to make way for these new investments. While all are great companies and a handful continue to be held in other Liontrust Global Equity Team funds, we have decided that they do not have the same suitability and prospects that the new positions discussed prior have in a post Covid World. For example with Disney, while we are great believer in the technology case for the company, including anticipating the recent success of the launch of Disney+, the company continues to suffer from the closure (or limited reopening) of its theme parks, its largest business by revenue. While in the long term the parks will reopen and the company will likely do very well, we have decided that the company’s short to medium term prospects being so closely tied to this business segment is not a suitable for this Fund, and the capital is better used elsewhere.

The outlook on equity markets appears to be steadier and more optimistic than it was even a few months ago. Plenty of risks remain, however. The underlying global economy, while recovering, remains in a difficult state, with low interest rates holding up asset prices despite poor near term prospects. An upcoming US election held under difficult circumstances with plenty of scope for accusation of foul play on both sides as well as potential civil unrest over a widening wealth gap, civil injustices and discontent over government handling of the pandemic could also create a large degree of uncertainty and volatility in the near future. The threat of a resurgent Covid-19 virus looms as well, as parts of Europe and North America have seen a “second wave” with local lockdowns and economic restrictions.

However, while we do not know the shape of things to come, we do know that technology companies continue to be a fantastic place to invest. Many of them benefit from trends that have been taking place for decades and will continue to take place for many years to come including trends accelerated by the recent outbreak such as ecommerce, cybersecurity, and the shift to the cloud. Thus, technology companies have given portfolios invaluable resilience during the recent market downturn as well as benefiting strongly from the recovery so far. They also provide strong and consistent growth in a low growth world where ultra-low interest rates disproportionately reward companies exhibiting the potential for outsized future returns. We continue to believe that by focusing on a company’s key financial metrics, supporting a strong investment narrative and a discounted cash flow valuation we can continue to provide long term outperformance in this exciting sector through careful and attentive active management.

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






Liontrust Global Technology C Acc GBP





MSCI World Information Technology





IA Technology & Telecommunications











*Source: FE Analytics as at 30.09.20


**Source: FE Analytics as at 30.09.20


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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 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.


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, October 21, 2020, 8:59 AM