- MA funds and portfolios deliver mixed performances
- Fixed income strongest contributor to returns
- Emerging market equities weigh due to China
The Liontrust Multi-Asset portfolios and funds delivered mixed performances in August1. Global equities had a rocky start when recession fears in the US sparked volatility. Equities mostly recovered, but Japan and emerging markets finished in negative territory in sterling terms as the UK currency strengthened over the month. However, fixed income delivered solid returns across the board for another successive month, while gold stood out again among commodities and global property and infrastructure performed well.2
Fixed income outperforms
The recession fears were sparked by the release of data showing the July US unemployment rate rose for the fourth month in a row to 4.3%.3 The stocks that fell the most in the US included the so called “Magnificent 7” mega caps that had performed so strongly over the last year, with microchip maker Nvidia taking the heaviest hit. However, the news caused a market reassessment of when the Federal Reserve will start cutting interest rates, which boosted fixed income markets and put the role of bonds as a diversifier versus equities back in the frame. Federal Reserve chairman Jay Powell added to the expectations by signalling there would be a rate cut in the US on September 18.4 He told the Jackson Hole conference for leading central bankers that “the time has come for policy to adjust.” Bonds contributed strongly to the performance of our funds and portfolios in August, with notable performers including iShares Corporate Bond Index, Aegon High Yield Bond, Barclays Global High Yield Bond and Man GLG Sterling Corporate Bond Professional.
A bad start
Japan and the US were the two major markets most affected by the early August pullback, which was perhaps unsurprising given the sustained increases that both have had over the past couple of years. Japan’s travails had in fact begun in July when the Bank of Japan raised interest rates, causing fears about the monetary direction of the country and causing the yen to appreciate. Our own view is that despite the fears over Japan, we believe the nation’s positive fundamentals remain intact and we kept our positive four out of five tactical outlook rating on Japanese equities, including small caps. Within our funds and portfolios, our holdings in Japan, including M&G Japan and Fidelity Index Japan weighed slightly on performance over the month. Our US holdings also weighed through Fidelity Index US and CT American Smaller Companies.
UK and European equities positive
In Europe, there were some economic benefits from the Paris Olympics, while eurozone headline inflation for August was in line with expectations at 2.2%.5 This eased the path to another rate cut by the European Central Bank in September. In the UK, the Bank of England did cut rates in early August, its first in the current cycle, by 25 basis points to 5.0%.6 The decision was closely split, however, raising some uncertainty about when the next cut will follow. Europe and the UK were the two strongest equity regions in sterling terms throughout August.2 Leading equity fund contributors in August included Fidelity Index UK, Fidelity Index Europe ex UK and IFSL Evenlode Income.
China weighs on emerging markets
Emerging market (EM) equities weighed on the performance of our funds and portfolios in August, with poor performers including Fidelity Index Emerging Markets, Artemis SmartGARP Global Emerging Markets Equity and FTF Martin Currie Emerging Markets. China is a major influence on EMs, and the news from the world’s second biggest economy has been poor of late: economic growth slowed abruptly in the second quarter, export growth also slowed in July and calls for the government to boost consumption have been growing.7 Some of the world’s biggest private equity firms have also pulled back from investing in China as the trade war with the US rumbles on and Beijing exerts tighter control over businesses.8 We still rank EMs a positive four out of five from a tactical viewpoint because of positive longer-term fundamentals, and the sector includes a lot of markets other than China.
Performance is linked to fundamentals
Too much can be read into the market volatility seen in July and early August. For example, the Japanese stock market fell around 25% from its peak in July to its nadir in August,9 but it would be unrealistic to think that the 225 companies listed in the Nikkei lost that much fundamental value in that time.
Swings in sentiment inevitably result in price movements, especially in the thinly traded markets seen over the summer. But such dips in prices can also present long-term opportunities for those who recognise that long-term positive performance of markets are closely linked to strong fundamentals.
1Source: Financial Express, 1 August 2024
2Source: Bloomberg, 6 August 2024
3Source: US Bureau of Labor Statistics, 2 August 2024
4Source: FT.com, 23 August 2024
5Source: FT.com, FT, 30 August 2024
6Source: Reuters, 1 August 2024
7Source: FT.com, 9 August 2024
8Source: FT.com, 25 August 2024
9Source: Bloomberg, 21 August 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.
