- All the Multi-Asset class funds and portfolios perform positively
- Emerging market and Asia ex-Japan equities strong
- Fixed income delivers again
The Liontrust Multi-Asset class portfolios and funds all delivered positive performances in September1, with higher risk-profile vehicles delivering the strongest returns. Fixed income delivered a solid contribution to performance for another consecutive month, but the leading performers were in emerging markets (EMs) and developed Asia ex-Japan. Commodities were higher, especially gold as tensions built in the Middle East, while property and infrastructure also delivered strong returns.2
Over the year to end-September, all five of the MA Explorer funds in the Investment Association Mixed Investment sectors were first or second quartile.1
Two boosts for EMs and Asia
EMs and Asia ex-Japan equities, for which we have positive tactical outlooks, received a double boost in September. First by the Fed’s 50 basis point rate cut,3 which will make it easier for sovereigns and companies in both regions to service debt that is issued in US dollars; the second and arguably more consequential boost was an announcement by China of a massive stimulus package to tackle the slowdown in its economy.4 China’s insipid post-Covid growth stimulus has weighed on EMs and Asia for two or three years, but the new package was a positive surprise for markets. Leading contributors to performance over the month included abrdn Asia Pacific ex-Japan Tracker, Fidelity Asia Pacific Opportunities and Federated Hermes Asia ex-Japan.
Elsewhere in Asia, the Bank of Japan (BoJ) held short-term interest rates at 0.25% and stated that the country’s economy was likely to keep growing beyond its potential growth rate ‘as a virtuous cycle from income to spending gradually intensifies’.5 BoJ governor Kazuo Ueda said Japan’s economy was growing in line with expectations and analysts expected interest rates to rise further, although uncertainty regarding the economic outlook in the US offset optimism about Japan’s inflation rising. Japanese equity was the poorest-performing equity region.
The US
The main headline for markets in September was the Fed’s cut in interest rates. It had left markets guessing on whether it might be a quarter-point or half-point cut, but its decision to reduce by the latter meant more stimulus for the economy by lowering borrowing costs for businesses and consumers. The cut was good news for smaller companies because it generally reduces the debt burdens for them disproportionately more than for their larger peers. While we are neutral on US equities broadly, we have been positive on US small caps for some time, raising our ranking for them from a neutral three to a positive four in the first quarter of 2024. They have underperformed the last two years versus the largest of their US counterparts, the Magnificent 7, as the tech behemoths captured investors’ imaginations. Because of this they offer attractive valuations at discounts versus historical levels, however. The Fed’s half-point cut may have presaged greater problems ahead for the US, in which smaller companies may struggle, but the Federal Reserve is at pains to point out the US economy is in good shape. Smaller companies tend to be quicker out of the blocks in a recovery and we firmly believe in the small cap premium.
UK and Europe slip
The European Central Bank also cut rates in September,6 but by a quarter point, while the Bank of England kept rates on hold.7 Both Europe and the UK also slipped into negative territory over September.2 Poor performers included WS Gresham House UK Multi Cap Income, Liontrust UK Equity and BlackRock European Dynamic.
Bonds positive again
Yet again, fixed income generally performed well in September.2 This reflected the reductions in prevailing yields as central banks cut rates amid falling inflation (bond prices are inversely related to yields), plus the low base that bonds are recovering from after the stresses of the rate hikes in recent years. Notable performers included Man GLG Sterling Corporate Bond Professional, Aegon High Yield Bond and Barings Global high Yield Bond.
August pullback left in wake
Historically, September has often been a volatile month for equities, but the generally positive returns from markets over the month showed that the panic seen at the start of August had been left far behind. Subsequent events have shown that the pullback was driven by sentiment rather than fundamentals. A pause for breath in markets is not unwelcome though. They have come a long way since their nadir in October 2022. Company earnings have been good, but a pause can give them a chance to catch up with the price/earnings multiples that have broadly increased. Our investment process focuses on market fundamentals, which are rewarded more than sentiment over the long term. If the fundamentals remain solid, then compounding of returns can do the work.
1Source: Financial Express, 3 October 2024
2Source: Bloomberg, 1 October 2024
3Source: Washington Post, 18 September 2024
4Source: FT.com, 24 September 2024
5Source: FT.com, September 20 2024
6Source: European Central Bank, 12 September 2024
7Source: BBC, 19 September 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.
