Liontrust Macro Equity Income Fund

September 2018 review

The Liontrust Macro Equity Income Fund returned -0.1%* in September, compared with the 0.7% return from the FTSE All Share Index.


While September’s underperformance of the FTSE All-Share undid some of August and July’s good work, the portfolio still enjoyed a solid Q3 in which it outperformed the index benchmark.


September’s market and Fund returns pivoted on two explicitly political events that came late-month: the EU’s rejection of Prime Minister May’s ‘Chequers Plan’; and the Italian government’s defiance of the EU in tabling expansionary budget proposals.


To be clear (and as we argued in a recent blog), second guessing political outcomes is an inherently unreliable exercise and a terrible basis on which to make long-term, portfolio choices. That said, although such considerations may not be part of our process, they can exert a strong, short-run effect on the Fund.


This was our experience of late September. The EU’s categorical rejection of UK Brexit plans triggered a minor market echo of June 2016. UK companies with significant domestic exposure sold off, whilst more defensive and internationally-focused businesses were in demand.


On balance, this was a drag on the Fund. The financials of our Population Ageing and Rising Rates themes, along with the building materials businesses of Infrastructure Spending basket, traded softer. This no doubt follows the well-worn assumption that Brexit is a near-term check on the UK economy and must equate to lower policy and market rates.


Parallel to this, investors renewed their appetite for several defensive sectors to which the fund has zero-exposure. Utilities, food producers and tobaccos rose. Only days later, the effect was reinforced by Italian budgetary wrangling. Once more, markets scented risk, reflexively sold economically-sensitive cyclicals and bid up defensive businesses.  


Does this effect our outlook and should we adjust Fund positioning? In a word, no. Encountering and filtering market noise is a staple part of running money and in this respect, our Macro-Themes serve a purpose.


Political newsflow does nothing to alter the fact that rates have bottomed and the banks of our Rising Rates theme will progress margins and grow earnings. It has zero bearing on ageing of the global population, the intent of governments and corporates to de-risk pension liabilities and the opportunity this presents for the life insurers of our Population Ageing theme. It also offers no respite to expensively-rated, bond proxy equities as financial conditions continue to normalise.


On a related note, September was also notable for the strength of the miners (+6.9%) that comprise our Scarce Resource theme. This coincided neatly with the EU’s rebuff of Chequers and the pound’s associated pullback; the sector’s US Dollar earnings and dividends gaining in sterling terms. Whilst UK politics forms no part of our case for the sector, this suggests that cheaply-rated, cash-generative miners offer one of the best value hedges of Brexit tail risk.


Elsewhere, US pharmaceutical and Global Pharma holding, Pfizer (+5.5%), capped a strong Q3 as markets discounted coming drug pipeline productivity and earnings growth. Whilst US telco and Data Growth constituent, AT&T (+4.5%) rose as the June closure of its Time Warner purchase allowed investors to refocus on fundamentals and signalled an end to risk-arbitrage selling pressure.


Macro-Theme Allocation (as at 30.09.18):

Macro Equity Income allocation


Macro-Theme Changes [1]:

Population Ageing

The position in Allianz was reduced; EU/Italian budgetary dispute counsels lower tactical exposure to continental financials.


Rising Rates

We upped exposure to Lloyds Banking with Brexit imponderables creating the chance to own a sector bellwether on an attractive rating. Its record of capital-generation supports buyback and dividend expectations and cements the total-return case.


Scarce Resource

Weightings to both Anglo American and BHP Billiton were increased at attractive prices following the correction in emerging market-related equities. Anglo American’s iron ore assets allow it to profit from compelling supply/demand imbalance while strength in copper gives it exposure to trends in automotive electrification. BHP Billiton’s balance sheet de-gearing, capex discipline and attractive shareholder returns policy offer considerable encouragement to income investors.


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 30.09.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.09.2018, 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 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 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. 

Wednesday, October 10, 2018, 10:43 AM