Liontrust Income Fund

The Liontrust Income Fund returned 2.3% over the quarter, underperforming the 3.7% return from its comparator benchmark, the FTSE All Share Index.*

The UK market delivered a strong performance during the second quarter that was driven by large market constituents, including AstraZeneca, HSBC, Shell and Unilever. M&A interest in UK assets also featured strongly, with bids across the size spectrum for Anglo American (rejected), Hargreaves Lansdown, Darktrace, and Britvic. Market expectations have shifted over the quarter to assume fewer base rate cuts by the end of the year by the Bank of England, which held rates at the latest June meeting.

From a sector perspective, the Fund benefited from being overweight in industrials and underweight in utilities. The Fund’s overweights in consumer discretionary and information technology were modest drags.

Positive stock attribution

The most significant contributors to performance over the quarter were your holdings in consultancy Alpha Financial Markets; investment platform AJ Bell; and the underweight position in beverages business Diageo.

Alpha Financial Markets provides specialist consultancy services to the financial services industry, including the areas of asset management and insurance. During the quarter the company received a private equity-backed takeover approach at an attractive premium.

AJ Bell delivered strong returns, benefiting from improving sentiment to the investment platform space as peer Hargreaves Lansdown received a takeover approach, while itself reporting better than expected asset flows and ongoing market share gains.

Negative stock attribution

Detractors from performance over Q2 2024 included medical devices provider ConvaTec; pharmaceuticals giant AstraZeneca; and B&M European Value Retail.

Convatec gave back gains made earlier this year on new reimbursement proposals which could impact Convatec’s Wound Biologics business. This is a small part of the business but fast-growing with good margins. We continue to monitor the situation.

AstraZeneca was a drag relative to the benchmark due to our underweight in this holding. The shares performed strongly on the back of a confident capital markets day.

Trading activity

Your positions in BP, AstraZeneca and Unilever were increased during the quarter. AstraZeneca has performed strongly during 2024 year to date with an above consensus medium-term revenue growth target outlined at the recent Capital Markets Day which we attended, and which demonstrated the breadth of management capability.

Positions in B&M, Howden Joinery, and Morgan Sindall were all reduced, the latter two following strong performance. B&M shares have been weak following low organic growth numbers and an increased reliance on new store openings to drive revenue growth. 

Outlook

What keeps us optimistic for the fund is the generally low valuations at which we can invest in good quality businesses in our home UK market. The widely discussed takeover wave of UK corporates is one validator of that theory, with one of our holdings subject to two competing bids at significant premia during Q1. Meanwhile, of course, the possibility of accelerated returns remains intact should the UK market revert to more fundamentally justified valuation levels at some point in the future.

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

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.

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. 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. The level of income is not guaranteed.

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. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.