Liontrust Global Technology Fund

The Liontrust Global Technology Fund returned 9.2% in Q2, compared with the IA Global Technology sector average of 5.1% and the MSCI World IT Index return of 11.3% (both comparator benchmarks).

Global equities continue to be led higher by the technology sector, as investors digest the transformation of growth prospects due to the rise of AI.

The MSCI World IT Index is exceptionally concentrated with over 50% in three stocks: Microsoft, Apple and Nvidia. The Liontrust Global Technology Fund aims to provide a much more diversified exposure to technology’s most innovative companies.

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.

Apple performed strongly in Q2 driven higher first by the announcement of stronger-than-expected quarterly sales and the largest share buyback in history, and secondly by the long-awaited unveiling of its AI platform, Apple Intelligence, which enables Apple to tap into investor excitement around AI. Apple introduced a range of new AI features during its annual developer conference (WWDC), including an overhaul of its voice assistant Siri, integration with OpenAI’s ChatGPT and a range of writing assistance tools. While Apple pitched these AI for the average person, users will likely need to upgrade their iPhones to access the tools. Apple started the quarter as one of the largest positions in the Fund due to negative market sentiment towards the company, however as its stock price responded to positive news we reduced our position down to 2.6% following a large move.

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. 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, primary share class, total return, net of fees and income reinvested. Fund inception 15.12.15; current fund managers’ inception date is 08.02.23.

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. This Fund may have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the Fund's value than if it held a larger number of investments. 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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