Liontrust SF Absolute Growth Fund

Q2 2019 review

The Fund returned 7.0% over the quarter, outperforming the IA Flexible Investment sector average of 3.8%*.

Equities enjoyed another solid period, despite a dip in May, and many indices are entering recording-breaking territory once again. As we have grown used to over recent years, this has been against macro uncertainty in the background, with tensions rising in the Middle East, the US and China continuing to argue on trade and Brexit still unresolved as the UK awaits its new Prime Minister.

Against this backdrop, all eyes were on the latest G20 leaders’ summit in Osaka at the end of June, which included another meeting between Presidents Trump and Xi Jinping as they try to break the deadlock. Without a deal, the US has threatened to apply tariffs on yet another $300bn of Chinese goods.

As always, we continue to stress that whatever macro events are unfolding in the background, the underlying business fundamentals for the areas of the global market in which we invest remain strong. Important structural dynamics, such as the shift to a digital economy, the drive to improve efficiency and the importance of improving quality of life, also continue to drive earnings.

Our themes are structural in nature and therefore less transient than cyclical drivers, which can change constantly. The key factor behind all our themes is the conviction that, over time, the global economy will become more sustainable.

In terms of asset allocation, we upped our cash position to 17% over the quarter: while we still see few signs of a recession on the immediate horizon, we feel the economic up-cycle is reaching its tenth year, with some key risks emerging – particularly related to tariffs and a potential trade war as outlined above.

Spanish telecom firm Cellnex was the best performer over the period, posting solid first-quarter results in May, having completed a capital increase of €1.2 billion to acquire further sites in France, Italy and Switzerland. CEO Tobias Martinez underlined the ‘transformational dimension’ of the acquisition, with the company’s current 29,000 sites expected to grow by more than 50%.

We believe infrastructure is the backbone of the digital economy and tower companies like Cellnex are poised to benefit from continued growth in communications: 5G, small cells and the Internet of Things will all increase demand for telecom infrastructure and the need for denser networks. Cellnex is an important consolidator in the European market, as the telecommunication companies divest their tower assets to focus on their core business. Cellnex then becomes an independent provider, with the telecoms companies all sharing its towers. This model matches that in the US and is more efficient for the overall infrastructure network by avoiding duplicated towers.

UK biotech company Abcam also outperformed as it announced details of its own capital raising during May, with plans to use the £200m proceeds to finance growth in China and the US and help fund new acquisitions. Abcam produces and supplies antibodies to life scientists in over 140 countries for basic research, drug discovery and diagnostics.

We believe the global healthcare industry needs to innovate, as it looks to address vast areas of unmet medical needs. The key to this innovation is research and development and we invest in the “picks and shovels” of this R&D across our portfolios. Abcam is a great example of a company at the leading edge of providing those picks and shovels. 

Elsewhere, a number of familiar names maintain their position among our top performers including healthcare business IQVIA, with the company’s data-driven strategy for outsourcing clinical trials creating an important competitive advantage.

IQVIA exemplifies another important theme our process targets within the global healthcare industry – affordability. The healthcare system needs to ensure the treatments and innovations it develops are available to the wider global population and this needs to be done in a way that does not bankrupt the overall economy. In the large Western economies, this is complicated by the fact populations are “greying”, which puts more cost burden on the system. IQVIA provides an important solution to the problem of drug costs by significantly improving the efficiency of clinical trials. 

Long-term holding Ecolab also continues to generate solid performance, a global leader in products that look to cut use of important resources, particularly water, for clients across the world. By cutting water and energy use, it also reduces costs for customers and has a reputation for great service and product innovation. Ecolab is a strong fit for our Improving the management of water theme and also continues to innovate: it is developing a polymer for Amazon, for example, that reinforces the strength of recycled cardboard.

Elsewhere, we continue to see opportunities in the growing move towards digital payments and holdings such as Visa and Paypal feature among our stronger names over the quarter.

By understanding what is important to consumers and merchants, Paypal has risen to become the number one choice for online payment transactions. A customer’s priority when they transact online is to ensure their personal and financial information is safe and they are not exposed to fraudulent sellers; merchants’ priorities meanwhile are for customer confidence in their purchase, and increased conversion rates. The stats stack up here: figures show customer conversion at checkout is 90% with Paypal, compared to around 50% when merchants use their own payment platform.

In terms of detractors over the period, US pharmaceutical business Eli Lilly and Co has struggled since announcing lower-than-expected first-quarter sales for its top-selling diabetes drug Trulicity – with the required rebates and discounts taking a toll and likely to weigh on revenue growth for the year. Lilly has been banking on newer drugs such as psoriasis treatment Taltz and migraine treatment Emgality to grow revenues and help offset pricing pressures and sales declines for other products but sales of both fell short of estimates in the quarter.

A number of technology-related names were also among our weaker performers, including Palo Alto Networks, Alphabet, and SS&C Technologies. Palo Alto reported lower-than-expected third-quarter billings during the period and several analysts cut their price targets, citing the company’s transition to annual cloud-based subscriptions, which is expected to distort billings and curb its cash flow.

Alphabet meanwhile reported its weakest sales growth in three years for Q1, with traffic to Google ads slowing and lower revenue per click for those ads.

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








Liontrust Sustainable Future
Absolute Growth 2 Acc






IA Flexible Investment sector average













*Source: Financial Express, as at 30.06.19, primary share class, total return, sterling, net of fees and income reinvested

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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.


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, July 29, 2019, 8:30 AM