Liontrust US Opportunities Fund

Q4 2020 review

During the fourth quarter of 2020, the Liontrust US Opportunities Fund returned 10.4%, versus the S&P 500 Index return of 5.9% and the IA North America sector average return of 7.8%*.

 

US equities continued to build on their recovery from the sharp sell-off in the first quarter of the year and have surpassed previous highs that were seen in February before Covid-19 hit. The main event of the quarter was the US election, which saw Joe Biden defeat Donald Trump for the White House, the Democrats maintain the House albeit with a smaller majority and, at the time of writing, the Senate going to a run-off in early January. This was not quite the so-called “Blue Wave” that had been predicted in the months leading up to the election but nevertheless led to a higher probability of more government support which arrived just before the year end in the form of a $900bn stimulus package. Markets also took solace from the prospect of lower geopolitical uncertainty under a Biden administration.

While the momentum behind the US economic recovery since the Spring has been impressive, more fiscal support is welcomed in the face of the Covid-19 pandemic which continues unabated. A third wave, particularly driven by the Midwest region which had largely escaped the worst of the pandemic earlier in the year, became clear during the fourth quarter. More positively, with Covid hospitalisations and deaths rising to new levels not seen earlier in the year, we received news that the leading vaccines, including Pfizer’s vaccine, jointly developed with BioNTech, and Moderna’s, are highly effective in preventing infections. Pfizer’s vaccine has already been granted emergency use authorisation in the US and it is hoped that this along with other vaccine candidates will leading to mass vaccination in the first half of 2021. Assuming manufacturing and distribution challenges are overcome, this will help the US economy return towards “normality” as we progress through 2021.

The strong rally in stocks continued to have a notable cyclical theme and this was given a boost by the vaccine efficacy announcements at the end of October. This also helped smaller market cap companies, which had been hit noticeably hard in the sell-off earlier in the year, to outperform their larger peers by a considerable margin. The Russell 2000 index, a proxy for smaller caps, which had been more than 15% behind the S&P 500 earlier in the year indeed managed to finish ahead for the year as whole after a very strong final quarter. We are pleased to see smaller caps regaining some ground but also note that there some emerging signs of exuberance in certain pockets of the US market. There were a number of high-profile IPOs during the quarter which doubled on listing, including AirBnB and Snowflake, alongside a tsunami of SPAC, or blank check company, offerings. A number of these have made acquisitions in the Electric Vehicle space which need to be monitored carefully and mostly likely avoided.

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 but in general, given the market backdrop, our smaller market cap holdings and companies in sectors and industries that were most impacted by the crisis performed best helped by the vaccine efficacy announcements during the quarter. Examples include LivaNova and Envista, in the medical and dental devices industries, which had been hit hard by elective procedures being postponed earlier in the year and Verra Mobility, the car rental and toll road technology provider, which will benefit from travel and mobility increasing after the vaccine rollout.  

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. We continue to believe that disruption, and particularly digital disruption, will remain the most important determinant of corporate success. We continue to search for companies that we believe will be drivers of this disruption (disruptors), help fuel it (enablers) or indeed benefit from it (embracers). 

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

 

 

Dec-20

Dec-19

Dec-18

Dec-17

Dec-16

Liontrust US Opportunities C Acc GBP

23.7

28.2

1.1

17.4

17.5

S&P 500

14.1

25.7

1.0

10.6

32.7

IA North America

16.2

24.4

-1.4

10.5

29.3

Quartile

1

1

2

1

4

 

*Source: FE Analytics as at 31.12.20

 

**Source: FE Analytics as at 31.12.20

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 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.

 

Monday, January 25, 2021, 3:54 PM