Liontrust Macro UK Growth Fund

December 2018 review

The Liontrust Macro UK Growth Fund returned -3.9%* in December, compared with the FTSE All Share Index return of -3.8%.


From the perspective of asset allocation the Fund’s mid- and small cap overweight served as a headwind to December returns. That said, our overweight exposure to more junior companies is not atypical of a growth strategy, given that these businesses are usually the loci of sales and earnings growth.

The comparative December strength of the FTSE 100 was, however, entirely consistent with the overall timbre of Q4, as investors sought refuge from market tumult in the relative safety of large-cap equities.

Large-cap strength was underscored by 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.

Whilst our AIM exposure is limited vis a vis our FTSE Small-Cap weighting, we were not immune to this effect. AIM-listed online estate and Digital Economy holding, Purple Bricks (-16.5%), featured as one of our weakest December performers. Market sentiment was soured by a broadly in-line interim update that saw company revenue estimates cut to the lower end of guidance.

The December strength of the Fund’s large-cap UK housebuilders offered a neat illustration of the divergence between UK market-cap strata. Operating in broadly the same industry as Purplebricks, our housebuilders’ experience of December was in stark contrast. Barratt Developments (+0.1%), Persimmon (+1.6%) and Taylor Wimpey (+1.7%) each performed comfortably ahead of benchmark, giving partial redress to year-to-date weakness.

There are good reasons why UK housebuilders should bounce. 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.

More generally, UK housebuilders are representative of the value ratings that characterise swathes of the FTSE 100. Our base case remains that as global rates tighten and liquidity ebbs, investor attention will turn to the historically stretched valuation spread between cheap and expensive companies. This should trigger a period of mean reversion, wherein ‘value’ outperforms ‘growth’. The portfolio’s lack of expensively rated growth darlings and its broader value tilt means we are positioned to exploit this inflection.

A further 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.

Lastly, top ten holding and Global Pharma constituent GlaxoSmithKline (-8.0%) offered something for both bull and bear in December. Early month 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 portfolio company. This deal has a 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. No cash has changed hands, leverage is unaffected and the JV’s eventual market listing offers a sizable source of funds for Glaxo’s ambition to grow its pipeline.

Macro-Theme Allocation (as at 31.12.18):


Macro UK Growth Allocation December 2018


Macro-Theme Changes [1]:


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







Liontrust Macro UK Growth I Acc






FTSE All Share Index






IA UK All Companies












[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.

**Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.

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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, 4:20 PM