Liontrust Global Technology Fund

The Liontrust Global Technology Fund returned 17.5% over the second quarter of the year, outperforming both the MSCI World Technology Index’s return of 11.4% and IA Technology & Telecommunications sector gain of 10.0% (both comparator benchmarks)*.

Equities continue to climb as the global economy appears to be bouncing back from the Covid-19 crisis. Despite further resurgences of the virus, including the particularly infectious Delta variant, successful vaccination rollouts have kept hospitalisations and deaths lower in more developed countries, allowing them to begin to permanently reopen their economies.

Inflation concerns persist as pent-up demand from several months of being trapped indoors, coupled with immense monetary and fiscal stimulus along with various supply shortages may begin to flow through to real prices and wages. The timing, extent, and implications of this inflation remain to be seen. Although central banks appear to remain fairly happy to keep rates low for the time being and accept

Technology, and more growth orientated equities in general, had a very strong quarter off the back of a difficult Q1. Partly driven by easing fears of imminently rising rates that could hurt the prices of these longer duration assets but also continuing high performance in earnings even as Covid tailwinds subside helped boost these companies’ share prices. As a result, the Technology Index (MSCI World Technology) has outperformed the wider Global equity benchmark (MSCI World) returning 11.4% and 7.3% respectively.

The strongest performers over the quarter were NVIDIA (+49.7%), Microsoft (+14.9%) and Alphabet (+21%). Other high performers of note were the cybersecurity companies in our portfolio including Cloudflare (+50.5%), CrowdStrike (+37.5%), Fortinet (+29.0%), Rapid7 (+26.7%) and Zscaler (+25.7%). These companies benefit from the broad increase in IT spend on next generation cybersecurity solution as the breadth and extent of cyber-attacks continues to rise with more high profile cyber-attacks such as the recent ransom attack on Colonial Pipeline.

On the other side of the ledger, detractors to performance included RingCentral, Tencent and CyberArk. Tencent along with Alibaba (-0.1%) and Baidu (-3.5%) all collectively suffered from both exposure to a more sluggish quarter for Chinese equities (with the MSCI China Index returning 2.1% vs 7.3% for MSCI world) but also further clampdown and regulatory control from the CCP. While the nature of the relationship between these companies and the state is complex and fairly opaque to outside investors, they still remain, in our opinion, great companies with massive market opportunities. The risk of further governmental intervention remains but so too does the fact that it is in no-ones interest to cripple these critical components of China’s geopolitical power.

Over the quarter, the Fund entered positions in ASML and LAM research, increasing our exposure to the semiconductor capital equipment industry alongside holdings in Tokyo Electron and KLA. Conversely, the Fund positions exited in the second quarter were Baidu, LivePerson, CyberArk, and DocuSign. These relatively small, lower conviction positions were exited to help fund the new buys mentioned above.

The outlook on equity markets appears steadfast and optimistic as the global economy continues its recovery from the pandemic. The chief concern, beyond the further waves of Covid variants remains inflation. Thus from a technology point of view, we want to understand whether this inflation may be consigned to the realm of atoms or bits.

From an investor perspective we believe, like many, the best protection against possible inflation is to own strong, high quality companies with competitive advantages and pricing power allowing them to keep costs low and pass inflating costs down the chain, flexing value propositions well in excess of what customers have to pay. Even better, many technology companies have an extremely low or zero incremental cost of goods anyway (e.g software and digital advertising).

Thus, high quality companies providing vital technology goods and services continue to be a fantastic place to invest, both benefiting from and driving digitisation trends now accelerated in the wake of the Covid pandemic. These trends include the rise of ecommerce, the shift to cloud software and cloud infrastructure, digital payments and next generation entertainment. We believe now more than ever it is important to actively seek and discern high performing companies from those whose value is more speculative and that by focusing on a company’s key financial metrics supporting a strong investment narrative and a discounted cash flow valuation, we can continue to provide long term outperformance in this exciting sector through careful and attentive active management.

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

*Source: FE Analytics as at 30.06.21

**Source: FE Analytics as at 30.06.21. Quartiles generated on 07.07.21.

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.