Liontrust Macro UK Growth Fund

September 2019 review

The Liontrust Macro UK Growth Fund returned 4.6%* in September, compared with the FTSE All Share Index return of 3.0%.

 

For the main part, September’s excess returns were a direct consequence of the month’s violent bout of investment factor rotation. Prior to September, 2019’s defining market narrative was one of slowing global growth, declining bond yields and equity investors’ reflexive clamour for companies deemed, however questionably, beyond the purview of the economic cycle. ‘Momentum’, ‘growth’ and ‘quality’ companies have thrived, whilst mature, or cyclical ‘value’ businesses have been shunned; a process reaching its crescendo in August’s minor market panic. September reversed this entrenched pattern and saw value companies bounce aggressively.

 

After the event, market strategists attributed this shift to September’s meagre uplift in government bond yields, or a modest tonal improvement in US-China trade rhetoric. Both, however, seem inadequate to the task of explaining one of the last decade’s biggest one-month divergences in the performance of value and growth stocks. More plausibly, September’s events flowed from investor positioning and the high degree of crowding in momentum, quality and growth businesses. Such obvious concentration has made these businesses expensive by the standards of history and prone to the diminishing influence of the marginal buyer. In contrast, the self-evidently depressed ratings of value companies, offer a more attractive trade-off between risk and reward and a far cheaper hedge on any revival of the reflation trade.

 

This delivered a fillip to performance. The portfolio’s overweight position in UK financials proved especially beneficial. The life insurers of our Population Ageing theme were in the vanguard of September’s winners, whilst the banks and diversified financials of our Rising Rates basket contributed meaningfully.

 

Brexit developments (Benn Bill, House of Commons election vote, Supreme Court prorogation ruling) and the diminished prospect of an immediate ‘no deal’, served to reinforce this effect; investors coveting cheaply-rated UK cyclicals as assorted unknowns were partially addressed. Obversely, the UK’s cohort of dollar earning, quality businesses (food producers, distillers etc), companies to which the portfolio is zero-weighted, underperformed imparting a boon to relative Fund returns. That said, value’s September outperformance extended far beyond the UK and it would be plain wrong to attribute causation exclusively to Brexit.

 

Stock specific news had scant impact on September returns, which is not to suggest that the month passed without incident. Canadian-listed Copper miner and Scarce Resource holding First Quantum Minerals (+35.3%) led gainers on bid rumours. UK spread better and Rising Rates position, IG Group appreciated by 17.2% on a Q1 update that revealed growth in clients and revenue per client, soothing fears that European leverage limits had dealt a mortal blow to profitability.

 

Equally, the portfolio impact of September’s news driven detractors was modest. CYBG (-18.7%), a mid-cap bank and Rising Rates constituent, declined heavily after announcing an additional PPI provision of £300-£450m. This is a disappointing dent to both profitability and regulatory capital, but the business remains cheap and we are expectant that synergies will accrue from the acquisition of Virgin Money. Lastly, capital markets business Shore Capital (-24.3%) fell sharply on news of management’s intent to delist the business due to the market’s “mispricing of the company’s equity”. We concur with management’s estimate of the business’s intrinsic worth, but the interests of our investors dictate that we have no truck with unquoted companies. The holding was sold.

 

Macro-Theme Allocation (as at 31.08.19):

Macro-Theme Allocation (as at 30.09.19)

Source: Liontrust

 

Macro-Theme Changes[1]:

Digital Economy

The position in Bloomsbury Publishing was reduced to manage capital and income within the Fund. Whilst the investment case remains attractive and the valuation undemanding, Bloomsbury’s comparative illiquidity and ex-dividend status gave us cause to reduce the position into share price strength.

 

Population Ageing

We believe shares in Legal and General are mispriced given its double-digit compound earnings and dividend growth. In addition, the company’s thriving annuity business offers explicit gearing to population ageing and the associated trend for corporates and government to de-risk retirement obligations. We increased our weighting.

 

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

 

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust Macro UK Growth I Acc

-1.7

3.0

11.7

0.2

6.9

FTSE All Share

2.7

5.9

11.9

16.8

-2.3

IA UK All Companies

0.0

5.5

13.6

11.7

1.9

Quartile

3

4

3

4

2

 

*Source: Financial Express, as at 30.09.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.09.2019, 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 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.

Disclaimer

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.

Thursday, October 10, 2019, 10:58 AM