Liontrust Macro Equity Income Fund

February 2018 review

The Liontrust Macro Equity Income Fund returned -3.1%* in February, compared with the -3.3% return from the FTSE All Share Index.


February pivoted on the key early month US payrolls release. Critically, a solid jobs number was accompanied by confirmation of accelerating earnings growth. Average Hourly Earnings printed ahead of consensus estimates at 2.9%, pushing the three month average to the highest level since ’08.


The hint of inflation was enough to dictate the direction of February market movements. Treasury and Gilt yields reached fresh cycle highs as the correction in sovereign debt markets gathered pace. Companies with bond-proxy characteristics were hit as investors reconsidered their merits in the midst of rising rates.


This was to the Fund’s advantage in February. The absence of tobacco (-10.2%), personal goods (-5.4%) and utilities (-6.5%), all on thematic grounds, ensured the Fund avoided these equity income pitfalls. The Fund was not wholly immune, however, with weakness seen amongst the telecoms constituents of the Data Growth theme.


Obversely, the Fund’s weighting to rate-sensitive life insurers and banks gave the portfolio a partial peg to February’s yield moves. Although both fell in absolute terms, each exceeded benchmark returns for the month and contributed some small measure of alpha.


The performance of UK bank stocks was partly driven by February’s spate of full-year earnings updates. Where HSBC disappointed on a modest earnings miss and the technical omission of an anticipated buyback, Lloyds surprised with a more generous capital return and Virgin Money exceeded estimates at the underlying profit before tax level. The portfolio impact was broadly neutral.


That said, February’s Bank of England Inflation Report only served to cement our conviction in the direction of rates and the implied benefits for the banks and life insurers of our Rising Rates and Population Ageing themes. Upgrades to the Bank’s growth and inflation estimates were accompanied by the promise that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent”. May looks probable.


From a single stock perspective, the portfolio’s conspicuous gainers included UK life insurer Phoenix Group. The announcement of an acquisition of Standard Life’s UK and European pension business was sufficient to rally Phoenix nearly 14% from February’s intra month low. Deal terms are favourable and the transaction extends the duration of the business’ cashflow, permitting larger dividends for longer. This is a deal we like.


Jupiter Fund Management detracted from portfolio returns, falling c.13.5% over February. The drop reflected a combination of February’s broad market weakness and a full year statement wherein much of the good news (net flow data, assets under management) had been preannounced. A consensus-busting dividend gave cause for excitement.


Macro-Theme Allocation:

Macro-Theme Changes[1]:


Rising Rates

We added to the Fund’s positions in BAE Systems and Lloyds. A share price correction following BAE’s muted full-year guidance offered an opportunity to increase exposure at a time when the shares trade at a discount to US peers and the company’s pension deficit offers gearing to higher rates. Lloyds is another business offering positive exposure to higher rates as assets (loans) are repriced faster than liabilities (deposits) and the difference is captured as profit.


The holding in Virgin Money was reduced. The end of the Term Funding Scheme removed a cheap source of funds and could check growth, while a managed slowdown of its credit card book defers margin expansion. The business’ growth opportunity is intact but delayed.


Population Ageing

The position in Carnival was lowered, following a change in our preferred means of expressing this theme. 


Infrastructure Spending

We completed the sale of Telford Homes. Its outlook is compromised by a reliance on foreign investment demand in the midst of a soft London property market. The thematic attractions of its growing Build to Rent business are offset by margin dilution.


Dollar Earners

Microfocus and Smiths Group were sold out of the Fund, closing the Macro Theme. Microfocus has a growing record of operational disappointment while its HPE acquisition carries substantial execution risk. Smiths Group is seeing evidence of pricing pressure in its medical devices business.


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








Liontrust Macro Equity Income I Acc






FTSE All Share Index






IA UK Equity Income














[1] The omission of a Macro-Theme expresses the absence of notable portfolio activity.

*Source: Financial Express, as at 28.02.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


This review has been prepared for the Liontrust Macro Equity Income Fund but is also representative of the Liontrust GF Macro Equity Income (the Feeder Fund). The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the Liontrust Macro Equity Income Fund (the Master Fund) and will typically be lower due to additional fees and expenses.


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. 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 Macro Thematic team 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. The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the Liontrust Macro Equity Income Fund and is likely to be lower than its corresponding Master Fund due to additional fees and expenses.


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, March 12, 2018, 3:17 PM