Liontrust Macro UK Growth Fund

July 2018 review

The Liontrust Macro UK Growth Fund returned -0.1%* in July, compared with the FTSE All Share Index return of 1.3%.


July’s defining market event came late month and gave investors cause to think about portfolio positioning. As the month closed, the acronymic FANG stocks (Facebook, Amazon, Netflix and Google) experienced a rare episode of selling pressure that saw them haemorrhage a collective $217bn in market cap.


Attributed widely to lacklustre updates from Netflix and Facebook, we’d suggest that blaming quarterly earnings seems to mistake the wood for the trees. Highly-rated FANG stocks, with all their promise of jam tomorrow, are emblematic of growth businesses in general. What’s more, their enormous recent success offers the clearest example of how investors have coveted growth companies over the last decade. In this way, large share price movements, precisely like that seen over the last three days of July, can be said to carry a much broader meaning.


It’s never clear until after the event, but it’s these moments that can mark the ebbing of one market trend and the start of another. In this instance, the transition could be from a period where growth companies hold sway, to another in which value stocks are in the ascendant. The portfolio has a value bias and is positioned to exploit this shift.


In respect of Fund business, our long-running Global Pharma theme performed strongly and made a significant contribution to Fund performance. There was no obvious, concrete driver of returns, but Q2 earnings releases were positive across the piece and would have done little to discourage investors; Merck and AstraZeneca delivering sales growth in cancer treatments, Pfizer upgrading guidance and GlaxoSmithKline revealing a successful launch in its Shingrix shingles vaccine and showing intent in R&D.


No doubt there was also a tactical dimension to July’s pharma strength, with other defensive sectors (tobaccos, telecoms, household goods, beverages etc.) outperforming the market. This is an obvious counterpoint to incipient weakness in tech, with sector moves suggestive of a market preparing for a larger correction in growth-style businesses. Our weighting to pharma and value-rated telecoms, financials and miners, gives us excellent exposure to any such shift in asset allocation.


In respect of individual companies, BT, a Data Growth constituent, bucked a trend of earnings disappointments in reporting Q1 numbers distinguished by a 3% EBITDA (earnings before interest, tax, depreciation and amortisation) beat. The share price rose 7.2% on the month, in illustration of overly pessimistic investor expectations. One encouraging update doesn’t resolve BT’s problems, but the company is cheaply valued and we now have some early evidence of a turnaround.


Close Brothers, the mid-cap merchant bank, rallied close to 7% on a Q3 update that spoke of momentum in its core banking business and the ongoing success of its securities division. There’s little doubt that July’s upturn in sovereign yields, with all its suggestion of margin expansion, would also have contributed to investor appetite for financials like Close and the other banks in our Rising Rates theme.


Brick manufacturer Ibstock fell 17.9% on the month following an interim trading statement that cited inclement Q1 weather, energy costs and production issues, in downgrading full year guidance. Operational disappointments aside, however, we were heartened by reference to strong industry fundamentals and confirmation of a mooted special dividend.


Resource Scarcity holding Glencore offered a further headwind to performance. The share price declined on news that the US Department of Justice was investigating the company’s compliance with the Foreign Corrupt Practices Act. Whilst historic fines gives some reason for investor concern, we’d suggest that size July’s correction bore little relation to precedent.


We also note July weakness in Bloomsbury Publishing, a Digital Economy constituent, but see little obvious cause beyond the vagaries of market sentiment. The company remains modestly rated relative to its exciting growth prospects in digital, adult and children’s publishing.


Macro-Theme Allocation (as at 31.07.18):

Macro UK Growth Theme Allocation July 2018

Macro-Theme Changes [1]:

Digital Economy

The position in DS Smith increased reflecting the take up of rights relating to its acquisition of Europac. The deal cements DS Smith’s market position in Europe and offers abundant synergy opportunities. The stock is modestly rated in light of its earnings growth track record.


Data Growth

Solid Q2 earnings and US dollar strength allowed the position in Verizon to be managed lower. There is a risk of UK rates rising at a faster pace than currently discounted in the sterling/US dollar exchange rate.


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







Liontrust Macro UK Growth I Acc






FTSE All Share Index






IA UK All Companies













*Source: Financial Express, as at 31.07.2018, 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.

[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 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. 

Monday, August 13, 2018, 9:13 AM