Liontrust US Opportunities Fund

Q3 2020 review

During the third quarter of 2020, the Liontrust US Opportunities Fund returned 5.8%, versus the S&P 500 Index return of 4.0% and the IA North America sector average return of 4.3%*.

 

US equities continued to recover from the sharp sell-off in the first quarter of the year and indeed surpassed previous highs that were seen in February before COVID-19 hit. The market continued to take solace from the supportive monetary and fiscal stimulus provided by the Federal Reserve and US government as the US economy gets back on its feet. The rally was also fuelled by the relatively contained rise in hospitalisations and fatalities despite a surge in new COVID cases in July in the Sunbelt states. This indicates firstly that virus treatments are becoming more effective but also importantly reduces the prospects of another full-scale shutdown should the US experience another wave of new cases. Other positive drivers in the quarter were progress on the vaccine front, with leading vaccine candidates generally reporting encouraging data and the US government continuing to commit billions of dollars to funding and pre-ordering doses as part of Operation Warp Speed, and US companies reporting much better than feared results alongside evidence that certain parts of the US economy are bouncing back strongly.

In terms of company results this was always going to be the quarter which bore the brunt of shutdown measures and we entered results season with consensus expecting S&P 500 earnings to decline by 44% in Q2. Instead, earnings fell by nearer 34% on a mean basis while the median company has seen earnings fall by just 14%. This is particularly impressive given that US economy shrank by a third in the quarter to June. 

Generally, the more cyclical sectors have led the rally since the bottom in March and this continued during the latest quarter. “Growth” as a style has continued to dominate “value” and has been helped by bond yields which have been rooted to low levels supporting valuation levels. The dominance of technology, particularly, amongst the mega caps remains inescapable. This handful of companies are seen to be beneficiaries of pandemic with many of the secular themes that have been in place for the last few years, including e-commerce and the shift to the cloud, only accentuated by shutdown measures.

With the election just around the corner and the passing of Ruth Bader Ginsburg, the US Supreme Court judge, US politics have been dominating headlines. Joe Biden, the Democrat Presidential candidate, extended his lead over Donald Trump in the polls and this accelerated towards the end of September. There has been increased talk of a Democrat sweep but the Senate is likely to remain a close battle.  While this would raise the prospect of higher tax rates the positives of a Biden presidency would likely be further fiscal stimulus and reduced geopolitical uncertainty which has been heightened over the last few years.

The Liontrust US Opportunities Fund outperformed the S&P 500 and the wider peer group during the quarter. The majority of the performance has been from stock specific factors with exception being in the energy sector where the Fund has benefited from having minimal exposure in the face of significant underperformance from this sector. Strong performers have included Horizon Therapeutics, the biopharma company, which has delivered strong sales from its key drugs including Teprotumumab (tepro) which treats thyroid eye disease. Given the backdrop of COVID-19, the strongest performers in the Fund have generally been companies that are seen to be beneficiaries of the crisis, many of these are to be found in the technology or technology-related sectors but also include companies like Lowe’s, the home improvement retailer, which has seen additional demand from consumers “nesting” at home and a US housing market which has remained resilient.

In terms of portfolio activity, we have made relatively minor changes to the portfolio and have been focusing our attention on companies and industries which we think we will structural beneficiaries of the post-COVID world. In some cases, these companies are already benefiting from the shifting trends but in others they are also enduring shorter term business disruption like much of the economy. There are opportunities, in our view, in both camps.

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

 

 

Sep-20

Sep-19

Sep-18

Sep-17

Sep-16

Liontrust US Opportunities C Acc GBP

13.7

7.5

27.0

17.9

19.6

S&P 500

9.1

9.7

20.6

14.1

33.7

IA North America

9.1

7.4

19.3

14.6

30.1

Quartile

1

3

1

1

4

 

*Source: FE Analytics as at 30.09.20

 

**Source: FE Analytics as at 30.09.20


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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 Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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.

Wednesday, October 21, 2020, 8:59 AM