Liontrust Macro Equity Income Fund

August 2018 review

The Liontrust Macro Equity Income Fund returned -0.8%* in August, compared with the -2.8% return from the FTSE All Share Index.

Anglo Pacific, a mining royalties business and Scarce Resource holding, set the pace in appreciating nearly 12%. Share price gains followed news that the company had acquired a new mining royalty, paying £38m for a stake in a tier one Canadian iron ore asset. The deal offers immediate earnings accretion and diversity, secures long-life cash flows and plays to China’s new found environmentalism and the related appetite for high grade iron ore. Little wonder investors were enthused.

August was less kind to the other mining constituents of the Scarce Resource theme. The FTSE 350 Mining index declined 9% as trade war anxieties and emerging markets concerns weighed on cyclical businesses. This is disappointing, but does nothing to detract from the sector’s cash-generative attributes, balance sheet strength and eye-catching valuations. Fundamentals will out.


Market unease was of more benefit, however, to the German real estate contingent of our Infrastructure Spending theme. Initiated in light of the supply/demand imbalance that defines Germany’s residential real estate market, our German property holdings are inversely correlated with bond yields; a relationship stemming from bond-like cash flows and the leverage underpinning property portfolios. August’s market disquiet produced an appetite for benchmark bonds, a mechanical decline in yields and a corresponding demand for German real estate shares. Mid-cap Tag Immobilien, was conspicuous in returning 9.5%.

Happily, this effect did not apply to various UK sectors with ‘bond-proxy’ characteristics and to which the portfolio has zero exposure. Beverage stocks, food producers and tobacco companies all declined, resulting in a significant fillip to the Fund’s performance relative to the index. Notably, the decline in tobacco stocks extends a de-rating that has been in train for more than a year and offers ample vindication of the bear case outlined in our recent blog: No smoke without fire?

August returns were dampened by weakness amongst the bank constituents of our Rising Rates theme. There seems little doubt that this follows from the August emerging markets squall and the inference that bank balance sheets are exposed.

This gives no credit, however, to the fact that August saw the Bank of England raise rates by 25bps to 0.75%. Let’s be clear, the UK jobs market is strong, a 4% unemployment rates is close to full employment and underlying wage pressures are firming. What’s more, with UK inflation (CPI) at 2.5%, the UK base rate remains deeply accommodative and there remains ample room to tighten without choking the economy.

Frankly, rates are going up and bank earnings with them. This seems far more relevant to the investment merits of banks, than a short-lived flap over Turkish debt.

Lastly, Digital Economy holding and non-life insurer, Hastings, warrants special mention. The shares returned c.8% over August, bucking recent weakness. In Hastings, we have an example of how market inefficiency can create opportunity. The market has de-rated this business on the assumption it has gone ex-growth. We view matters differently, reading a more prudent, margin-centric growth strategy in recent trading updates. August feels like a watershed.

Macro-Theme Allocation (as at 31.08.18):

Macro Equity Income Theme Allocation 


Macro-Theme Changes [1]:


Rising Rates

We took profits on River and Mercantile, a position held since the company’s IPO. The combination of an FCA investigation into fund manager conduct, a CMA enquiry into pension consultancy practice and the failure to broaden the equities business are suggestive of tough operating conditions and management’s inability to address this.

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







Liontrust Macro Equity Income I Acc






FTSE All Share Index






IA UK Equity Income












*Source: Financial Express, as at 31.08.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 30.06.2018, total return (net of fees and income reinvested), bid-to-bid, primary 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.

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

For a comprehensive list of common financial words and terms, see our glossary 


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 Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.
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. 

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Tuesday, September 11, 2018, 4:48 PM