Liontrust Global Technology Fund

Q4 2019 review

The Liontrust Global Technology Fund returned 3.6%* over the fourth quarter, compared to 4.8% from the IA Technology and Telecommunications sector and 6.0% from the MSCI World Technology Index. While underperforming over the quarter, the Fund continues to beat its peer group average on the 3 year and since inception metrics, showing the Fund’s capacity to outperform over the longer time horizons.


Market Overview


The final quarter of 2019 was a positive one overall for markets and the technology sector in particular. Several long-standing macro issues began to have positive news flow. The US-China trade war began to see progress towards de-escalation with a “Phase 1” agreement to be signed in early January 2020. This along with other factors such as the conclusion to British political turmoil, and signs of a rebound in global growth provided positive sentiment going into 2020 and a boost to markets.


Portfolio Attribution


Top performers over the quarter included Fortinet, RingCentral, Apple, Nvidia and AMD. Fortinet and RingCentral both represent core themes in the Fund − cybersecurity and communication software respectively. Fortinet rose off the back of a phenomenal Q3 earnings report with a substantial beat and raise and has not looked back since with the share price beginning to show the company’s great quality, and leadership in a competitive but fast-growing industry. RingCentral similarly traded off a significant Q3 beat with the announcement of a strategic partnership with Avaya making RingCentral the exclusive UCaaS product for Avaya’s 100 million users and 4,700 partners.


Apple was another top performer but as ever comes as a double-edged sword. While its impressive return helped boost the Fund, we hold it in far more sensible amounts than the Index. While we stand by our significant shareholding in Apple, it can never comprise the same amount of our portfolio (not least due to regulatory reasons) nor would we want such a position for the sake of balance and sensible portfolio management. However, this does therefore constitute a significant active risk (as an underweight) and in periods where the stock massively outperforms, as it did in the quarter, we trail the Index (similar is true for Microsoft which makes up nearly 15% of the benchmark). While cautious on valuation, we continue to have conviction in Apple and their shift towards high margin services and wearables, leveraging their massive base of installed devices.


The semiconductor industry had an impressive run in Q4 and has led the Index. Nvidia and AMD in particular had fantastic returns this quarter. This is in part due to the easing of worries around the US-China trade conflict that deeply impacts the supply chain for these companies. Intel also continues to struggle, allowing AMD, and to a lesser extent Nvidia, to seize market share. In addition, semiconductor stocks, including these two, continue to benefit from the uptick in demand from the ever-growing number of interconnected devices.


A few of our software holdings had a tough Q4, including Twilio, Constellation Software and Intuit. Twilio has had a fantastic run and continues to deliver, but questions were raised over its valuation and possible deceleration of its core growth. Constellation Software and Intuit are two fantastic high quality names. Again, much like Twilio, there has been some concern as to whether valuations were becoming overextended. These two are fantastic compound growth companies, and while valuations may fluctuate, underneath, the compounder model continues to churn away and generate impressive long run performance.


Portfolio Changes


Q4 saw a few portfolio changes. Exits include SoftBank, Ping An, 8x8, Cisco and Checkpoint Security. SoftBank was exited due to concerns over the current handling and governance of the vision fund. While for better or worse the vision fund is transformative and SoftBank trades at a hefty discount to its sum-of-the-parts value. Ping An was exited partly to take profits and reallocate elsewhere, but also partly due to concerns over the political situation in Hong Kong, a key market. 8x8 was exited due to the shift in competitive landscape in the UCaaS space with RingCentral continuing to outperform and out execute leaving behind 8x8. While 8x8 does have a more compelling valuation than its competitor and there is certainly space for more than one winner, we prefer our position in RingCentral for now. In a similar vein, we exited Cisco which has continued to suffer attacks on all sides. While it is still a dominant player in the enterprise space with massive scale and sales power (and fantastic cash generation), it is being eaten away at by younger upstarts like RingCentral in UCaaS, its WebEx video conferencing software has been losing to Zoom (founded by a former employee) and other products such as its cybersecurity offerings are losing ground to more focused competitors like Palo Alto Networks and Fortinet.


New additions to the portfolio included CME, Disney and Equinix. CME (Chicago Mercantile Exchange) offers a unique technology use case in leveraging technology to create a dominant next generation trading platform. Disney’s new DTC (direct to consumer) product, Disney+, will not only generate fantastic long term return leveraging of its unparalleled content offering (with only incremental investment in extra content needed) but the audience and data acquired with this product will help supercharge other areas of Disney’s empire (such as parks and merchandise). Equinix provides key infrastructure for data centres for both internet service providers and cloud server farms. Its leadership in the market provides excellent network effects and value proposition to its colocation tenants. It is also committed to running on 100% clean energy long term, providing a sustainable future for a vital and ever-growing service




The overall mood of the market seems to be one of cautious optimism. 2019 caps off the best year for technology since 2009 with the Index returning over 40%. This, along with the fact that much of this came from multiple expansion/rerating as opposed to improving fundamentals would lead investors to caution. However, the 1-year period removes the dramatic downturn in late 2018 from which the market rebounded in early 2018. This along with the fact that historically high return years tend to be followed by modestly good years, are rasons why outlook should not be overly dampened by a strong preceding year.


As ever, we continue to be very optimistic about the future returns from technology companies. Technology stocks have significantly outperformed the wider universe of equities (MSCI World Index vs. MSCI World Technology Index) for the past 10 years, with the best technology companies leading the way by reaping the benefits of both providing and utilising the productivity gains that technology promises. We also 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: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)


**Source: Financial Express, as at 31.12.2019, total return (net of fees and income reinvested)


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.


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.

Friday, January 24, 2020, 9:37 AM