- Core infrastructure was the biggest detractor to performance, closely followed by core property
- Cyclical real assets also weighed on performance in January
- Diversifiers were largely flat in a difficult month for the fund
Over the month to 31 January 2024, the Diversified Real Assets Fund (the ‘Fund’) returned -5.0%, (Class A accumulation share class, net of fees).
Within core infrastructure, which was the largest detractor to the Fund’s performance in January, social infrastructure weighed heavily, driven down by our holding in BBGI Global Infrastructure and HICL Infrastructure. Renewable infrastructure holdings also had a negative impact over the month.
Core property also contributed negatively to the Fund’s overall performance, due to the weakness of the speciality REITs sub sector, and our holdings in Tritax EuroBox Euro and Assura in particular.
Global infrastructure equity was a negative contributor to performance, driven down by our holding in RWE AG.
However, in what was a difficult month economically, diversifiers remained largely flat, with infrastructure bonds showing a small positive return thanks to National Grid Electricity and Transport For London.
Outlook
The market’s bullish sentiment on the dovishness of central banks at the end of last year gave way to a recalibration of expectations in early 2024. This was aided by relatively strong jobs data in the US with the result being bond yields that bounced off the lows of December 2023. This negatively impacted all financial assets, including real assets.
As interest rates have been the primary driver of risk and returns for the last 12 months, they will continue to drive risk and volatility – however, we expect there to be a positive impact as we believe the general direction of rates is lower. The market will continue to second guess the Federal Reserve and the Bank of England, thus driving volatility, but our focus remains on company fundamentals and being patient for our cheap valuations to be rewarded over time. The Fund remains at the cheapest level valuation (P/E, dividend yield) since its inception, with a current running yield close to c6%.
We expect both the historically cheapest valuations and the interest rate catalysts to drive strong positive returns over the next 12 to 24 months (albeit it will not all come in a straight line). Furthermore, in the last few months we have been encouraged to see several of our companies engaging in buybacks, in order to take advantage of the historic share price discounts to book value or in some cases also to engage in corporate activity to dispose selective asset(s) to reduce leverage or recycle the capital into more profitable projects. Importantly, the disposals have been done at either book value or at meaningful premiums to book, providing valuable evidence that the double-digit share price valuations are strongly disconnected with the book or liquidation value of the portfolio. This helps us build conviction in the fundamentals of our companies, which will ultimately drive the total returns over the medium to long term.
We believe for most clients, owning a diversified portfolio which contains defensive real assets alongside their traditional equities and bonds can provide a good source of diversification, especially in an economic and earnings slowdown scenario.
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. This Fund may have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. International banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
DISCLAIMER
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
