Liontrust Global Innovation Fund

The Liontrust Global Innovation Fund returned 7.4% in Q2, ahead of the IA Global sector average of 0.7% and the MSCI All-Country World Index return of 2.8% (both comparator benchmarks).

The Fund’s Q2 outperformance was driven by large gains across a range of holdings, particularly those participating in IT sector strength: Nvidia, Taiwan Semiconductor Manufacturing Corp (TSMC), and ARM were the biggest contributors. Slightly offsetting this was some share weakness in Mondo DB, and Ginkgo Bioworks.

Shares in Nvidia, the semiconductor chip designer at the centre of an AI boom, continued their surge higher in the second quarter driven by improving fundamentals. The company reported that it expects Q2 revenue to come in around the $28 billion mark, topping consensus estimates and reminding investors that we are only 5 minutes into the football match when it comes to the AI compute buildout.

Furthermore, the rate of progress achieved by Nvidia with each new computer architecture shift − from Hopper to Blackwell and beyond − indicates that we are still in the early stages of this technology's development and potential. Nvidia is making increasing strides with each new architecture, suggesting that the pace of advancement in AI hardware is accelerating rather than slowing down. These factors highlight the robust growth and potential challenges in the AI buildout, emphasising the importance of sustained investment and innovation in AI infrastructure.

As the world’s largest semiconductor manufacturer and key supplier to Nvidia, Taiwan Semiconductor Manufacturing Company (TSMC) is also at the forefront of what we believe will be the biggest infrastructure buildout in history, due to the transformational nature of the a new AI-driven technology cycle. In the first quarter of 2024, TSMC recorded 17% year-on-year revenue growth driven by demand for its advanced technologies unit – defined as 7-nanometer and below – which accounted for 65% of total wafer revenues. As TSMC builds out additional advanced packaging capacity and captures more of the economic profit in the emerging AI compute market, we expect TSMC to re-accelerate earnings from tough 2023 levels. When you combine this dynamic with an emerging cycle in edge devices, TSMC has a very positive 5 year outlook.

Shares in ARM Holdings have been in an earnings upgrade cycle since February’s Q3 results laid out in no uncertain terms the extent of the demand growth it anticipates for its technologies in order to “enable AI everywhere, from the cloud to edge devices in your hand”. While announcing full-year revenue of $3.23 billion in May – towards the upper end of the upgraded forecast range provided in February – ARM forecast that 20%+ sales growth next year to a range of $3.80 billion - $4.10 billion. There’s a good reason why Nvidia’s attempted takeover of ARM was blocked by UK regulators and the exceptional position it has developed within the compute value chain to drive down the cost of energy efficient compute is starting to be recognised.

Turning to the detractors, genetic engineering company Ginkgo Bioworks tumbled after cutting its revenue forecast for the full year, as Q1 sales fell by more than anticipated. In an effort to target EBITDA breakeven by the end of 2026, the company is refocusing on cost-cutting and a simplification of its service offer to clients. After meeting with management, we decided to exit the holding and place it back on the watchlist until we have a clearer strategic direction from company.

Shares in document database and data services provider MongoDB fell after company lowered its sales guidance for year. While Q1 revenue rose 22% year-on-year, new contract wins were lower than anticipated, leading it to trim full-year revenue guidance (for the period to 31 January 2025) to $1.88 billion - £1.90 billion, down from $1.88 billion - £1.90 billion a few months earlier. While we have very little exposure to enterprise software companies, as new AI upstarts seek to disrupt incumbents with significantly cheaper alternatives, MongoDB is well positioned to benefit from the structural growth in unstructured data services.

Overall, across the portfolio we were more active than usual as stock price volatility in certain areas of the market meant we continued to manage position sizes. During the quarter, we significantly reduced our technology weights as stock prices moved up, while we increased our weightings in the consumer sectors where stock price weakness started to offer great opportunities. We remain very optimistic about the future returns of the funds with a significant level of competition for capital across the Fund and watchlist.

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

*Source: FE Analytics, as at 30.06.24, C accumulation share class, total return, net of fees and income reinvested. Fund inception date is 31.12.01; the current fund managers’ inception date is 01.07.19.

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. The Fund may invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term. 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.

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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.

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