- MA funds and portfolios deliver mixed results, reflecting diverse equity performances
- Fixed income relatively strong across the board; gold and real assets positive
- Emerging markets and Asia Pacific ex-Japan weaker following strong second quarter
The Liontrust Multi-Asset portfolios and funds delivered mixed performances in July,1 reflecting the diverse performances of equities. The Japanese stock market fell, but it still delivered the strongest returns on a sub-sector basis in sterling terms because of yen strength. UK equities were also positive, but the US, and especially Asia Pacific ex-Japan and emerging market equities, slipped in sterling terms. It was a relatively strong month across the board though for fixed income, while gold stood out in a commodities complex that was mostly negative and real assets performed well.2
The Trump trade
Early in July, the shock news of the failed assassination attempt on presidential candidate Donald Trump was seen to raise the chances of his election and prompted the ‘Trump trade’. The US dollar and stocks moved higher while 10-year treasuries dipped on greater expectations that his presidency would lead to greater government spending, looser regulations and corporate tax cuts.3 These moves dissipated later in the month, however, when president Joe Biden announced his withdrawal from the presidential race in favour of Kamala Harris.
The economic news in the US continued to look encouraging: US headline inflation fell faster than forecast to 3% in June4 and GDP was up at an annualised 2.8% in the second quarter in a sign of continued consumer resilience.5 Falling inflation, improving earnings outlooks and the prospect of interest rate cuts saw investors switch their allocations into US small caps.6 There was also some rotation out of the technology sector, contributing to the overall market’s negative performance. We are cautious about the technology sector and have said for some time that the degree of its outperformance without a correction at some point would be highly unusual. Within our funds and portfolios, CT American Smaller Companies and BA Beutel Goodman US Value, to which we have been switching exposure in recent months, were among our overall best contributors in July but TM Natixis Loomis Sayles US Equity Leaders was a poor performer.
Rising expectations for UK rate cut
The UK was the strongest major stock market in July and WS Gresham House UK Multi Cap Income was among the strongest contributors in our funds and portfolios over the month. After having been a difficult political environment for some years, the change of administration in a landslide election at the beginning of July transformed the UK into one of the more stable democracies among its peers. New data showed that the UK economy was strengthening, with GDP up 0.4% in May,7 while inflation came through at the target rate of 2% for June.8 Expectations for a Bank of England cut in August grew amid signs that inflationary pressures were easing globally.9
Eurozone growth exceeds expectations
Europe’s equity markets settled down and ended flat in July after French elections did not deliver the extreme result that had been feared. Eurozone inflation edged up slightly to 2.6% from 2.5% in June, making a cut by the European central bank in September less likely.10 The economy also grew more than expected in the second quarter, rising 0.3% and calming fears that the nascent recovery in the bloc could be running out of impetus.
Mixed news from China
Emerging market and Asia Pacific ex-Japan equities were down in sterling terms over the month and were negative contributors to our funds and portfolios. We rank both regions a positive four out of five from a tactical viewpoint because of longer-term fundamentals and in our second quarter rebalance we increased our target asset allocations to both regions. In July, however, the news from China, which is influential on both regions, was mixed. Latest data showed that China missed economic growth expectations in the second quarter and new home prices fell at the fastest pace in nine years in June.11 However, there was good news in that China’s exports grew at the fastest pace in more than a year in June.12
Yen strengthens
The yen has been weak because of the low domestic interest rate, but it strengthened toward the end of July – marking a major shift in global currency markets – after the Bank of Japan (BoJ) raised its benchmark interest rate to 0.25%, its highest since the Global Financial Crisis in 2008, and outlined plans to cut its monthly bond purchases by half. Japan’s core inflation was 2.6% on the year in June, having exceeded the BoJ’s 2% target for 27 consecutive months.13 M&G Japan was a moderately positive contributor in our funds and portfolios over July.
Bonds benefit from easing rate expectations
Fixed income was a significant contributor to returns in our funds and portfolios over July as investors’ interest rate expectations moderated. iShares Corporate Bond Index was among our leading contributors to our managed portfolios. Adjustments in interest rate expectations were also supportive of Liontrust Diversified Real Assets, which was the best contributor to performance in several of our managed portfolios.
Ignore short-term noise
Since the end of July, global equity markets have seen a period of high volatility in which Japanese and US equities especially have seen sharp falls. Stock market declines always attract headlines, but our team seeks to ignore short-term market noise and we avoid trying to time markets.
These market movements did not change our fundamental view of the economy or investment markets. We remain optimistic about equity markets in general, with the best opportunities lying in Asia ex-Japan, emerging markets, the UK and US small caps.
We are in a new economic environment with a higher cost of capital, higher inflation despite the recent slowdown, increasing geopolitical conflict and fragmenting globalisation. We can only repeat our message that investors will benefit from a diversified portfolio that active managers can help to provide, particularly through exposure to small and mid cap equities, bonds and alternatives.
1Source: Financial Express, 1 August 2024
2Source: Bloomberg, 6 August 2024
3Source: Reuters, 15 July 2024
4Source: FT.com, 11 July 2024
5Source: FT.com, FT, 25 July 2024
6Source: FT.com, 19 July 2024
7Source: FT.com, 11 July 2024
8Source: ONS, 17 July 2024
9Source: FT.com, 31 July 2024
10Source: FT.com, 31 July 2024
11Source: Reuters 15 July 2024
12Source: FT.com, 12 July 2024
13Source: FT.com, 31 July 2024
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.
The Funds and Model Portfolios managed by the Multi-Asset Team may be exposed to the following risks:
Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value. 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; Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss; Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected; Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time; Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies; Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates. Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices. Any performance shown in respect of the Model Portfolios are periodically restructured and/or rebalanced. Actual returns may vary from the model returns.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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.
