Liontrust Global Technology Fund

Q3 2021 review

The Liontrust Global Technology Fund returned 3.7% over the third quarter of the year, versus the MSCI World Technology Index’s return of 3.9% and IA Technology & Telecommunications sector gain of 1.2% (both comparator benchmarks)*.


Global equities have been fairly flat as a result of early optimism from steadily rising vaccination rates and subsequent “New Normal” reopening, followed by harsh crackdowns in the Chinese market spanning from education through to gaming and even finance. More recently, fear of contagion from Evergrande (a large Chinese conglomerate with a hefty loan book) looking like it may have to default its debt obligations, has dampened an already downtrodden Chinese market as well as scaring global investors fearing both direct business exposure to China as well as second order consequences.

Inflation concerns persist with central banks noting a spike in recent metrics, what remains to be seen is just how “transitory” this inflation will be. Supply chain strains, combined with reopening demand, a hot job market and shortages already being felt in the UK, suggest that this inflation may not be transitioning all that soon. That said, central banks seem content to continue to delay substantial rate rises for now.

Technology focused equities had a good quarter (although modest by recent standards) building on an already strong year-to-date run. A steady flow of strong Q2 earnings reinforced confidence in the underlying strength the digitisation trend even as pandemic tailwinds recede, as both companies and consumers continue to buy, update and install new technology to stay abreast of their peers.

As a result, the technology Index (MSCI World Technology) outperformed the wider Global equity benchmark (MSCI ACWI) returning 3.91% and 1.37% respectively. Over the year, the Funds return of 23.7%, falls short of the benchmark return, 24.1% our average IA peer return of 26.2%. The long-term track record of the Fund remains strong, outperforming its peers and benchmark, returning 208.2% over 5 years, marginally behind the benchmark 216.2%%, but well ahead of the peer group average of 178.2%.

Over the quarter, the Fund’s returns were led by positions in Fortinet, Microsoft and Alphabet. Other high performers of note include software companies Asana and Datadog, as well as Cybersecurity companies Palo Alto Networks, Rapid7 and Zscaler who as well as Fortinet continue to benefit from the broad increase in IT spend on next generation cybersecurity solutions. This is one of the key trends we seek to invest in as the frequency, breadth and extent of cyber-attacks continues to rise as too does the importance of the digital infrastructure bad actors target, and enterprises must defend.

Tencent, along with Alibaba continue to suffer from increased investor nervousness over Chinese regulation. Beijing has continued to flex its control over the economy, stressing its goals of common prosperity, while also putting in place regulation spanning finance, education and gaming all of which have impacted these tech giants. While these Chinese stocks continue to be somewhat volatile and unpredictable in the short to medium term, the underlying companies still remain, in our opinion, strong with massive market opportunities. The risk of further government intervention remains but so too does the fact that it is in no-one’s interest to cripple these critical components of China’s geopolitical power. In portfolio terms, we can manage these risks (and asymmetrical upside opportunity) with very modest portfolio positioning. With this in place, we are not quite ready to turn our backs on China just yet.

Over the quarter, the Fund initiated positions in Asana, Dynatrace, Adyen and Etsy. Asana and Dynatrace are both investments into our trend of companies providing businesses with essential tools to increase productivity. Dynatrace helps increase Dev Ops productivity with a suite of products to help IT operators to optimise their cloud operations, and Asana with a general productivity platform allowing for better collaboration and task distribution/monitoring for all knowledge workers.

Adyen is an investment into our digital payments trend. Adyen is the leading European payments platform combining online, mobile and in person point-of-sale systems, popular with enterprises seeking to harmonize their online and in store operations, especially in the wake of the pandemic.

Finally, Etsy is an investment into our ecommerce trend, with Etsy itself being a leading marketplace platform for home crafted and boutique goods. While Amazon and other popular chains may dominate the online market for well-known brands and consumer products, Etsy has carved out a lucrative and growing niche by providing a trusted platform for micro entrepreneurs and creatives. Etsy pulled forward a lot of growth in the pandemic as not only a place for bored hobbyists to buy and sell goods during lockdown but also one of few places to buy masks as Etsy sellers exhibited the platform’s unique advantage in being able to quickly adjust production to cater to new demands. We believe the pandemic put Etsy in a structurally better place going forward.

The outlook on equity markets appears cautious. As the global economy continues its recovery from the pandemic, eyes turn to inflation and possible rate-tapering policy from Central Banks.

From an investor perspective, while increased policy rates will likely have short term negative consequences for high duration assets like fast growing technology stocks, we believe high quality companies providing vital technology goods and services continue to be a fantastic place to invest. They both benefit from, and continue to drive forward, the digitisation trends that have now remained resilient both during the height of the pandemic and now in its wake. These trends include the rise of ecommerce, the shift to cloud software and cloud infrastructure, digital payments and next generation entertainment. We believe now more than ever, it is important to actively seek and discern high performing companies from those whose value is more speculative and that by focussing 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:

 

Sep-21

Sep-20

Sep-19

Sep-18

Sep-17

Liontrust Global Technology C Acc GBP

23.7

38.6

4.2

41.9

21.5

MSCI World Information Technology

24.1

38.4

12.8

31.9

23.8

IA Technology & Telecommunications

26.2

34.6

10.9

22.4

20.6

Quartile

3

2

4

1

3

 

*Source: FE Analytics as at 30.09.21

 

**Source: FE Analytics as at 30.09.21. Quartiles generated on 07.10.21

 

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. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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 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

 

This information 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, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Friday, October 22, 2021, 2:03 PM