Liontrust Macro Equity Income Fund

December 2018 review

The Liontrust Macro Equity Income Fund returned -3.7%* in December, compared the FTSE All Share Index return of -3.8%.


December’s market-matching return proved sufficient to ensure that the Fund outperformed the FTSE All Share Index over both Q4 and the second half of 2018.

From an asset allocation vantage, returns were assisted by the Fund’s material weighting to large-cap equities. Bucking 2017’s precedent, the FTSE 100 outperformed both the FTSE 250 and small-cap indices. In this way, December served as the coda to a second-half in which investors sought safety from market tumult in the relative safety of large-caps.

Nowhere was this contrast more explicit than in the comparative weakness of the AIM All Share index. Having outperformed the FTSE 100 between the Brexit referendum and September 2018, AIM stocks fell by 22% over Q4 and underperformed UK large-caps by more than 12%. The near halving of ASOS’s share price in the wake of a December profit warning offers a striking illustration of this.

But there is a further, unspoken dimension which sheds light on our large-cap bias and Fund positioning more broadly.  The fact remains that a meaningful part of the FTSE 100 is both cheap by the standards of history and cheap vis a vis other pockets of the UK market. This flows directly from the Global Financial Crisis, the low rate response and the upwards influence this exerted on the valuations of companies with growth characteristics.  

The combination of monetary tightening and the historically stretched spread between the valuation of ‘growth’ and ‘value’ companies tells us this era is ebbing. We anticipate a period of mean reversion, wherein value outperforms growth. The FTSE 100’s abundance of cheaply-rated income stocks offers attractive opportunities to exploit this and the Fund is positioned accordingly.

A key example of the Fund’s value bias can be seen in the mining overweight of our Scarce Resource theme. This proved an important contributor to Fund returns, as the FTSE 350 Mining Index outperformed the benchmark in appreciating more than 5%; large cap miners and portfolio holdings Anglo-American (+11.6%), BHP (+10.0%) and Rio Tinto (+4.8%) all featuring in the vanguard.

The proximate cause of strength amongst large-cap miners came from early December news of a G20 accommodation in Sino-US trade talks. The miners’ sensitivity to the macro economy and the shadow of trade tariffs means there should be a kernel of truth in this. But it’s difficult to escape the conclusion that this effect was accelerated by the sector’s clear value traits, as investors shunned growth amidst Q4’s ongoing equity market weakness.

The portfolio’s overweight in UK housebuilders was a further pocket of value to contribute to December returns. Whilst only 2.6% of portfolio assets, our exposure to Barratt Developments (+0.1%), Persimmon (+1.6%) and Taylor Wimpey (+1.7%) amounts to nearly twice benchmark weight. This has been a modest drag on performance throughout 2018, as housebuilders, along with other UK-centric cyclicals, have been sold on Brexit fears. But deeply depressed valuations fail to reflect the UK’s structural undersupply of new build housing, the net cash position of these businesses, or the release of pent-up demand that likely follows any Brexit clarity. December’s modest bounce offers partial redress.

Top ten holding and Global Pharma constituent GlaxoSmithKline fell 8% and offered a headwind to December returns. Share price weakness followed news of the US$5.1bn acquisition of Tesaro, a pharmaceutical focusing on cancer treatment. Investors took umbrage at the deal’s 110% premium to the undisturbed price, its effect on leverage multiples and the modest earnings accretion profile. Such criticisms are not without merit, but management has an avowed intent to deepen Glaxo’s drug pipeline; cancer is one of several areas of interest and this deal satisfies company strategy.

Happily, the blow was softened by subsequent news of a consumer healthcare tie-up with Pfizer, a fellow Fund holding. This deal has long history of flirtation, but its consummation looks positive for shareholders. The joint venture creates a business with combined sales of nearly £10bn and category-leader status across a number of niches. Importantly for dividend maintenance, no cash has changed hands and leverage is unaffected. The JV’s eventual market listing offers a sizable source of funds for Glaxo’s ambition to grow its pipeline.

Lastly, the telecoms businesses of our Data Growth theme experienced a soft December. This bucks the broader second-half trend, which saw portfolio companies BT and Verizon substantially outperform the FTSE All Share. We read nothing terminal in December’s performance and continue to believe that investors will covet the sector’s attractively priced defensive earnings, as growth businesses lose their lustre.

Macro-Theme Allocation (as at 31.12.18):


Macro Equity Income Allocation December 2018

Macro-Theme Changes [1]:

Global Pharma

The position in GlaxoSmithKline was reduced following news of consumer healthcare tie-up with Pfizer. The resultant share price rally presented an opportunity to manage the holding lower, in line with investment process limits on position size.

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 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg

**Source: Financial Express, as at 31.12.2018, 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.

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 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.




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.
Tuesday, January 15, 2019, 4:27 PM