Liontrust Global Income Fund update

The Liontrust Global Income Fund has been through a number of changes in recent years, including a transition from the UK Equity Income sector to the Global Equity Income sector. James Inglis-Jones has managed the fund since March 2009 and was joined in September 2012 by Samantha Gleave.

Peformance of the Liontrust Global Income Fund since change of process*

*From July 2013, the objectives of the fund were changed to allow the managers to select companies on a global basis, having previously been required to invest at least 80% of the fund in UK listed companies. To reflect this change, the fund moved from the IA UK Equity Income sector to the IA Global Equity Income sector in August 2013.

Since the change in strategy, the Liontrust Global Income Fund has underperformed both the IA Global Equity Income sector and the MSCI AC World Index by 12.9%* and 19% respectively. According to the managers, the reason is two-fold.

Firstly, due to its high-income focus the fund has very little exposure to the US, which accounts for around 55% of the index. US stocks have generally performed well and have benefitted from a rising dollar. The Liontrust Global Income Fund, which has maintained limited exposure to the US, has missed out on these gains. The managers are happy to maintain low exposure to US companies as they feel many are highly valued and generally provide a low income.

Past performance is not a guide to future returns. Source: Lipper IM* to 04/01/2016.

Secondly, the performance of high yielding stocks has lagged that of their lower-yielding counterparts over the past few years. At 5.45% (variable and not guaranteed) the fund offers a substantially higher yield than the majority of its peers but its focus on the highest-yielding stocks has detracted from the overall value of the fund. Over the longer term, the managers expect high-yielding stocks to perform well relative to the MSCI AC World Index and so are prepared to be patient.

Current positioning

The managers favour the consumer services sector for its cash generative companies and strong growth characteristics; investments include clothing retailer Next. The managers have also invested in a number of telecoms companies, including South African provider Vodacom, as they have generally offered high dividend pay-outs. Vodacom, for example, paid 90% of its earnings as a dividend in 2015. In contrast, the fund’s exposure to utility companies is low, reflecting low dividend yields in the sector.

As the fund transitions to a global focus, exposure to the UK has reduced to 30% compared with 73% in August 2013. Exposure to Europe and Asia has increased to 29% and 19% respectively. As the managers have found it difficult to find attractively yielding companies in North America (the US, Canada, Mexico and Central America), exposure to this region remains low at 13%. The fund is concentrated at 43 holdings which means each stock can have a greater impact on overall performance, but is higher-risk.

Our view on this fund

The fund provides one of the highest yields available in the Global Equity Income sector; however, total returns (income and capital) have been disappointing which has led us to feel the managers are neglecting capital growth at the expense of income, which in the long run is unsustainable. At present we do not feel the fund warrants a place on the Wealth 150 list of our favourite funds across the major sectors. We will keep investors informed if our views change.

The fund’s charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.