Liontrust Macro UK Growth Fund

January 2019 review

The Liontrust Macro UK Growth Fund returned 6.8%* in January, compared with the FTSE All Share Index return of 4.2%.


The Fund enjoyed a strong January. For the most part, returns flowed from the strength of the Fund’s downtrodden UK cyclicals. The housebuilders and brick manufacturers of our Infrastructure Spending theme rose c.20%; whilst the banks and life insurers that populate our Rising Rates and Ageing Population baskets, appreciated more than 10%.


Scouring the copious output of sell-side strategists, you’d be forgiven for concluding that the January resurgence of UK cyclicals was intimately related to the manifold twists of the Brexit process; Parliament’s mid-month rejection of Theresa May’s deal was cited as conclusive proof of a looming soft Brexit and incentive for buyers of domestic-facing companies.


This is only partially true. Certainly, Brexit and any associated uncertainty has pressured sterling-denominated assets. As we know, this has been most acute for those companies operating principally in the UK and transacting mainly in sterling. Why else would portfolio holdings Legal & General be rewarded for 10% compound earnings and dividend growth with a miserly single-digit earnings multiple?; or Lloyds trade at book value in spite of its best-in-class returns profile and progressive shareholder returns policy?


But it seems a stretch to suggest that a myopic focus on the inscrutable, day to day actions of politicians will yield any obvious benefit to the long-term stewardship of unitholder capital. More tangibly, the UK is cheap, we know that Brexit is short-dated and that clarity of one sort or another is coming. In this regard, the January strength of UK-facing companies feels like an early taste of things to come.


A predictable side effect of investors’ renewed hunger for domestic cyclicals was the comparative weakness of more defensive companies. This had a mixed impact on Fund performance. The telecoms companies of our Data Growth theme extended December’s underperformance and exerted a further drag on returns. This effect no doubt explains why a strong BT update and inline earnings from Vodafone were insufficient to excite investor enthusiasm.


The influence was more benign, however, in respect of the relative benefits accruing from the weakness of non-hold defensives. Tobaccos, food producers, distillers and consumer goods businesses registered negative returns in an otherwise strong month. That said, the considerable relative performance benefits were pared late month by the combination of a broker upgrade for UK tobacco and a dovish set of Fed minutes; Fed Chair Jay Powell’s more patient approach to monetary tightening signaling to some that the Fed could ease and that bond-proxy defensives were a ‘buy’.


Lastly, the mining companies of the portfolio’s largest theme, Scarce Resource, traded strongly and made a significant contribution to January performance. This followed the month’s more than 10% advance in iron ore spot prices and the corresponding rally in mining companies with material iron ore exposure; top ten holding Rio Tinto and Canadian junior Labrador Iron Ore Royalty Company, leading the gainers.


As is no doubt understood, the rally in iron ore follows the failure of a tailings dam at Vale’s Feijao mine and its disruptive effect on supply. The associated loss of human life marks this event as a tragedy and any financial import is ultimately meaningless.


That said, the resultant spike in iron ore, however short lived, attests to our view that the commodity is stricken by a deterioration in its structural supply outlook. This implies higher profits, more free cash flow and ultimately, rising shareholder returns.


Macro-Theme Allocation (as at 31.01.19):

Macro UK Growth Allocations January 2019

Macro-Theme Changes [1]:

Infrastructure Spending

The position in Marshalls was reduced in order to take profits. The shares are highly-rated relative to the peer group while earnings growth is overly dependent on the continued strength of its smaller Domestic division;


Rising Rates

A new position was imitated in IG Group. We believe this to be a value opportunity following the fall in earnings estimates and valuation which accompanied European limits on retail trader leverage. Its share rating gives zero credence to numerous earnings offsets (APAC growth, US retail FX etc); it is high-margin, market leading business with record of product innovation; and earnings are geared to the type of market volatility that tends to accompany rate-tightening cycles.


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








Liontrust Macro UK Growth I Acc






FTSE All Share Index






IA UK All Companies












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

*Source: Financial Express, as at 31.01.2019, 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.

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.

Monday, February 11, 2019, 4:11 PM