Liontrust Global Technology Fund

The Liontrust Global Technology Fund continues to invest in global leaders and disruptors within the technology sector that are well positioned to benefit from the new AI-driven technology cycle. 

• The US Federal Reserve’s change in policy direction should be a tailwind for companies in the Fund
• A recent reset for valuations across the market has presented upside opportunities across the Fund 
• The Fund is well-positioned to capitalise on China’s improving economic landscape and growth potential

The Liontrust Global Technology Fund returned 2.3% in September, placing it in the first quartile of peers and ahead of the IA Technology & Technology Innovation sector average of 0.0% and the MSCI World Information Technology Index return of 0.1% (both comparator benchmarks).

This rounded out the third quarter in which the Fund returned -9.9% compared to the IA Technology & Technology Innovation sector average of -4.7% and the MSCI World Information Technology Index return of-4.3%. Longer term performance remains strong, with the Fund having returned 52.8% since inception (08.02.23) ranking it fifth in the IA Technology & Technology Innovation sector.

September proved a more upbeat finish to a third quarter characterised by bouts of extreme volatility, swings in consumer sentiment, and macroeconomic policy action. Notable was the decision by the US Federal reserve to cut interest rates by 50 basis points at its mid-September meeting. This marked the first rate cut since the aggressive tightening cycle that started in early 2022 and was facilitated by an ongoing cooling of inflation data from the 2022 post-Covid peak. This change in policy direction served to stimulate both US and global markets, in part as it reduced pressure on other central banks around the world that have followed similar tightening patterns. We expect this change in policy direction to act as a tailwind for the types of high-quality innovative companies held in the Fund.

One such beneficiary was Broadcom, the Fund’s top contributor in September, which was buoyed by both the improved market sentiment and a strong earnings update early in the month. Broadcom posted a strong beat on both revenue and earnings expectations and upgraded its AI revenue outlook for 2024 to $12 billion. The company is benefiting from the exponential expansion of GPU clusters for AI training, which is increasing the need for high-speed interconnects and thus shifting the value proposition towards networking equipment. Broadcom, with its 70% market share in ethernet networking switch silicon, is capitalising on this trend. The company's dominance is evident in its Tomahawk product suite, used in seven of the eight largest AI clusters deployed today. With a decade-long lead in developing Custom ASICs and a best-in-class annual XPU architecture cadence, Broadcom is well-positioned to maintain its market leadership in this rapidly growing sector.

Another beneficiary of improved market sentiment was Palantir, also a top contributor to performance in the month. Palantir builds software platforms for both commercial and government institutions, offering four major platforms: AIP, Foundry, Gotham, and Apollo. The company's Foundry platform integrates data to digitise product cycles from raw material to customer delivery, and it is capable of optimising inventory levels across hundreds of factories and potentially saving companies over $50 million in weeks. However, it's Palantir's new AI Platform (AIP) that's generating the most excitement. AIP empowers organisations to leverage cutting-edge AI technologies, including large language models, in a secure and effective manner. The platform's rapid deployment in complex environments is particularly noteworthy. For instance, customer HCA Healthcare has seen impressive adoption rates, with departments using Palantir's AIP tripling from 50 to 150 between June and September 2024, on track to reach 400 departments and 40 facilities early next year.

Elsewhere, in late September the Chinese government launched an aggressive fiscal and monetary easing programme, a significant step-up from intermittent stimulus measures introduced throughout the year. This came as a welcome relief to an economy that had been long languishing off the back of a weak property market and associated low business and consumer sentiment. It also kicked off the strongest rally in Chinese markets in over a decade, to the benefit of domestic stocks as well as global companies exposed to the Chinese economy. The scale of this stimulus programme, on top of record savings accrued over recent years, bodes well for Chinese consumer and business sentiment and the associated increased potential for spending and investment going forward.

We took advantage of attractive valuation entry points to initiate several new Chinese positions throughout the month, positioning the fund well for improved market sentiment going forward. One such addition was Pinduoduo, a leading social e-commerce platform that has revolutionised online shopping with its innovative "team purchase" model. This approach has driven exponential user base growth and market share gains, while its overseas business, Temu, has rapidly expanded to 289 million monthly active users across the US, Europe, and Latin America, presenting substantial growth opportunities. We also initiated positions in Chinese companies Meituan, a leading food delivery and local services platform, and Tencent, a global leader in gaming with dominant domestic positions in social media and cloud services – each well-positioned to benefit from both the new technology cycle and the ongoing recovery in the Chinese market. With Fund exposure to China at approximately 10%, we believe we are well-positioned to capitalise on the country's improving economic landscape going forward.

Beyond the macro, a promising earnings update from memory chip manufacturer Micron in September served as a positive bellwether for the broader memory market, bolstering stocks across the semiconductor and AI-related hardware space, including a number of holdings in our Fund. Onto Innovation, a provider of advanced metrology and inspection solutions, was one such holding that rebounded strongly. The company's integrated approach to semiconductor manufacturing processes positions it well to capitalise on both an improved memory market outlook as well as the broader ramping adoption of advanced packaging technologies driven by AI chip development, bolstering projections for significant market expansion and strong earnings growth over the next few years. Similarly, Fund holding SK Hynix, the global leader in memory chip technology, also reacted positively to this update, helping the stock pare losses earlier in the month. These movements underscore the positive outlook for semiconductor and AI-related hardware companies as the new technology cycle continues to unfold.

We maintain our view that the last few months have served as a reset point for valuations across the market, presenting considerable upside opportunities across the Fund and watchlist and thus attractive buying opportunities of which we continue to take advantage. This optimism has been supported by an earnings season in which we saw innovative companies across our portfolio continue to deliver strong progress in both fundamentals and competitive positioning, and further vindicated by the affirmative policy actions seen throughout September.

In line with this view, in September we took the opportunity to increase our position in Amphenol, a leader in high-tech interconnects, which had traded sideways for much of the month. Amphenol's products are crucial components in rapidly expanding AI infrastructure, with the company's content per system increasing significantly as GPU clusters scale. For instance, Nvidia's upcoming Blackwell superchip rack scale system is expected to contain over $100,000 of Amphenol content per system. Beyond datacentres, Amphenol's technologies enable electrification across mobile, automotive, defense, and various other industries. This diversification, combined with the company's consistent M&A strategy, supports projections for sustained double-digit sales growth and mid-teens EPS growth, supporting continued attractive valuation upside at current levels.

On the other side of the equation, we maintain our strict valuation discipline, trimming or exiting stocks as they approach our target price. This strategy enables us to take advantage of cyclical shifts in share prices and is particularly important during periods of market volatility where upside potential can swing rapidly. In line with this approach, we exited our position in AMD during the month as it reached our target price, moving it back to our watchlist where we will monitor it for potential future investment opportunities. We also reduced our weight in Apple, which began to approach our target price following a strong run throughout the quarter. This surge was bolstered by Apple's robust iPhone launch in September, where the company showcased next-generation models built "from the ground up" for AI, featuring enhanced capabilities that allow for more sophisticated on-device processing without compromising user privacy. While we continue to believe in the upcoming upgrade super-cycle at the edge, valuation discipline remains paramount, and we currently see more attractive upside opportunities elsewhere across our investment universe.

September witnessed several other significant advancements in artificial intelligence and new device launches that have bolstered our optimism about the continued progress and potential of AI and the associated new technology cycle. Notable was the release of OpenAI's "Strawberry" model with enhanced reasoning capabilities, which raises the bar for AI outputs, achieving PhD-level proficiency in various tasks. Later in the month, Meta introduced a new open-source multimodal Llama 3.2 model while also giving us a glimpse of its next-generation augmented reality glasses, which promise to transform computing interfaces in the future. These innovations from industry leaders not only accelerate the adoption of AI at the consumer level, but also reinforce our confidence in the new AI-driven innovation cycle and its ability to generate sustainable growth opportunities for the Fund's holdings going forward.

Looking ahead, we remain optimistic about the opportunities for innovative technology companies as we enter a new technology cycle. The potential for further supportive policy action is encouraging, with the U.S Federal Reserve likely to pursue additional interest rate cuts later this year, alleviating pressure on other central banks globally. Scheduled key government meetings in China provide potential for further stimulus, building on recent positive momentum. These concurrent efforts should provide a tailwind for innovative companies as we approach another crucial earnings season, in which we anticipate further signs of progress from innovators across our portfolio and watchlist. Key events such as Tesla's Robotaxi Day in October offer exciting glimpses into emerging technologies that could shape the future landscape. While we expect U.S. election-related volatility in the months ahead, we do not foresee it significantly impacting the Fund's performance. In this dynamic environment, we will continue to maintain our strict valuation discipline, seeking to capitalise on attractive opportunities while managing risk in the portfolio. This approach helps us navigate periods of market uncertainty while pursuing long-term growth potential.

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

*Source: FE Analytics, as at 30.09.24, 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.

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.