Liontrust Global Dividend Fund

• Earnings updates throughout November provided us with good insight into how companies are balancing current market conditions with longer-term structural opportunities 
• Eaton and Halma were among the top contributors in November, while key detractors included companies with Chinese exposure such as BYD and L’Oreal.
• We will continue to maintain our valuation discipline, focused on investing in innovative global companies at attractive valuations that are on the right side of emerging structural trends such as AI.

The Liontrust Global Dividend Fund returned 0.3% in November, placing it in the 4^th quartile of peers and behind the IA Global Equity Income sector average of 2.7% and the MSCI World Index which returned 5.8% (both are comparator benchmarks).

Longer term performance remains strong, with the Fund having returned 123.4% since manager inception (31.08.17), in the 1^st quartile of peers, ahead of the IA Global Equity Income sector return of 70.7% and the MSCI World Index return of 122.2%.

Market Backdrop

November began with a flurry of consequential macro events, most notably the US presidential election on 5^th November. The quick, decisive outcome served as a major risk-clearing event for markets, fostering an unwinding of crowded shorts and driving a retracement in the VIX volatility index. Trump's victory, alongside a broader Republican sweep, bolstered US stocks given expectations around deregulation and the potential for corporate tax cuts, helping the S&P 500 rally over 5.7% in November − its biggest monthly gain of 2024. “Trump-trade” stocks proved key beneficiaries, including small caps, cryptocurrencies, speculative technology stocks, and financials (particularly regional banks). Despite some concerns around the US deficit and inflation implications of potential Trump administration policies, bond yields remained relatively stable following October's significant backup, providing a supportive backdrop as we enter the final month of the year.

Policy developments also proved supportive, the U.S. Federal Reserve implementing another 25 basis point rate cut, while Chairman Jerome Powell moved to quell speculation about potential political interference by reaffirming the Fed's independence. Elsewhere, China's National People's Congress unveiled a substantial 10 trillion yuan stimulus package. While the scale of the package was largely in-line with expectations, there was some disappointment in the composition – focused on local government debt relief rather than direct consumption and fiscal support – leading to subsequent softness in Chinese stocks. Nonetheless, this stimulus represents an important step in Beijing's efforts to reinvigorate growth, with additional support measures anticipated in early 2025.

Elsewhere, spending data from November's major shopping events, including Black Friday and China’s Singles Day, provided insight into consumer patterns. Against a backdrop of economic uncertainty and technological change, consumers demonstrated a clear preference for discounted offerings while accelerating their shift toward online platforms. US retail spending rose 3% year-on-year over the Black Friday period, driven by double-digit e-commerce growth (Mastercard SpendPulse). In China, where consumers have been particularly weak, recent stimulus efforts − notably trade-in subsidies − supported consumption through the Singles Day period, though earnings season updates continued to highlight China as an ongoing area of weakness.

The third quarter earnings season otherwise proved broadly positive, with market sentiment buoyed in particular by companies continuing to validate the artificial intelligence growth narrative. Most notable was Nvidia (held in the portfolio), a bellwether for broader market sentiment, which delivered impressive results with data centre revenues increasing 112% year-on-year. Management provided strong guidance for their next-generation Blackwell processors, helping allay market concerns around AI growth going in to 2025 and beyond.

Company updates

Earnings updates throughout November provided us with good insight into how companies are balancing current market conditions with longer-term structural opportunities, our analysis supported by our recent research trip to global innovation hubs of Silicon Valley and Boston. Importantly, we continue to see good investment opportunities across sectors, with innovative global leaders positioning themselves well to be on the right side of the new innovation cycle.

For example, we benefited from our position in Eaton − a global leader in electrical and power components, exposed to multiple structural growth drivers including datacentre power demand, electrification, and grid resiliency. The top contributor to Fund performance in the month, Eaton rallied following an impressive earnings update that showcased the company's strong positioning in the ongoing AI infrastructure build-out. Orders are accelerating, driven by robust datacentre demand where the company maintains one of the broadest portfolios of power technologies. The company remains incredibly well positioned with a mega-projects backlog which now sits above $175 billion after growing 48% year-over-year and continues to take share in the US market. Management is astutely responding to this demand acceleration, increasing incremental capital expenditure from $1 billion to $1.5 billion to expand capacity. Importantly, this investment is not coming at the expense of profitability − segment margins reached a record 24.3% in the quarter, supporting 15% earnings per share growth and robust free cash flow. This is facilitating continued strong shareholder returns: its dividend has increased by over 9% in the past year (an acceleration from its c.6% five-year average annual growth), while full-year share buybacks are expected to reach the top end of its $2.5 billion guided range.

In the technology sector, recent addition Halma delivered a strong November update, with shares rallying after the company posted record revenues and earnings. Operating through a decentralised structure, Halma is a global leader in acquiring businesses within niche end-markets that focus on making the world safer, cleaner, and healthier. The company beat expectations across the board, with organic revenue up 11.5% year-over-year supporting a 17% increase in earnings. Its Environmental & Analysis division showed particular strength, with revenues up 27% and profit up 38%, driven by strong demand for Photonics products that support the acceleration of digital and data processing capabilities. The Safety division also performed well, bolstered by robust growth in Fire Safety products, and while the Healthcare division was more muted on end-market weakness, management noted green shoots are emerging. M&A remains strong, with four new businesses added in the first half and three more ahead of reporting, and recent additions contributing 3.5% to revenues and 4.3% to adjusted operating profit. Importantly Halma remains well positioned going forward, with a pipeline of over 600 potential targets and significant financial firepower given its balance sheet strength (net debt to EBITDA – earnings before interest, tax, depreciation and amortisation – ratio of 1.27x, well below its 2x target) and impressive cash flow generation (cash conversion of 108%). This has all enabled Halma to maintain its five-year growth track record by again increasing its quarterly dividend by 7%.

More broadly, market dynamics had contrasting impacts on Fund holdings throughout the month. The Fund continued to benefit from exposure to the financial sector, with Blackstone, Morgan Stanley, and Visa all strong contributors to performance in November. Having all reported strong updates in October, these companies continued to benefit in November thanks to the improving regulatory backdrop following the Republican party’s US election sweep and the ongoing rate-cutting cycle which is helping to reignite capital markets and bolster consumer sentiment.

Conversely, companies with Chinese exposure faced continued headwinds, with key detractors to performance in November including BYD, L'Oreal, and Alibaba. The latter, a global leader in e-commerce and cloud computing, reported mid-month and showed how it is navigating the challenging Chinese consumer environment through innovation and strategic initiatives aimed at strengthening its competitive positioning. In its core retail platform, the company is focused on improving its value proposition to merchants and consumers alike, optimising merchant relationships through revised fee structures and opening its ecosystem to third-party providers, while continuing to invest in user experience enhancements. Meanwhile, Alibaba's cloud division is emerging as a significant growth engine, with AI-related revenues maintaining triple-digit growth rates for the fifth consecutive quarter as the company solidifies its position as Asia's leading provider of AI infrastructure. These ongoing investments in innovation and platform enhancement position Alibaba to emerge even stronger once market conditions improve. With continued strong cash generation and $79 billion in cash on its balance sheet, Alibaba maintains substantial financial flexibility to continue to invest in these strategic growth initiatives while returning capital to shareholders through its ongoing $4 billion buyback programme and recently initiated dividend.

Trade activity

We continue to maintain our valuation discipline, trimming or selling companies as they start to reach our target prices and buying or topping up businesses when we see attractive upside opportunities. A prime example of the latter in November was Constellation Energy, the world's leading nuclear energy provider, which we topped up following an unexpected Federal Energy Regulatory Commission ruling in early November that created a temporary overhang on energy shares. While the narrow 2-1 vote raised questions about the co-location of data centres with nuclear power plants, we remain confident in Constellation's ability to meet surging clean energy demand through various delivery mechanisms, including its recent landmark 20-year agreement with Microsoft. The company posted a strong update in the month highlighting continued strong operating performance, with nuclear production increasing 3% year-on-year to over 45TWh at an industry-leading 95% capacity factor, driving 29% earnings growth and supporting an increase in full-year guidance alongside expectations for at least 13% earnings growth through 2030. Similarly, we took advantage of weakness in Eli Lilly following its late-October update where one-off events masked the underlying strength of its GLP-1 franchise. With the obesity and diabetes market still less than 1% penetrated and representing a potential $100 billion opportunity, we view recent manufacturing capacity expansion and the company's measured approach to demand stimulation as signs of strength rather than competitive pressure, so topped up our position accordingly.

On the other hand, we trimmed our position in Dell, a global leader in enterprise computing benefiting from the emerging edge AI device replacement cycle. We reduced our position on valuation grounds as shares approached our target price following a strong run. On the same basis we exited our position in Equinix, moving it back to our watchlist after it reached our price target. We will continue to review this position but see some potential near-term challenges from the ongoing shift toward accelerated computing in AI workloads, which could impact Equinix's rack-based monetisation model as these more efficient architectures require significantly less physical data centre space than traditional computing deployments.

Looking ahead

As we enter the final month of what has been a dynamic year for markets, attention will likely focus on seasonal consumer data as well as the upcoming US Federal Reserve meeting, where expectations for another 25 basis point rate cut have recently increased.

Though ongoing political turmoil and seasonal impacts may influence markets as we approach year end, we will continue to maintain our valuation discipline, focused on investing innovative global companies at attractive valuations that are on the right side of emerging structural trends such as AI.

We’re excited to share insights from our recent research trip. Wishing everyone a safe and joyful holiday season. Read the full article here.

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

*Source: FE Analytics, as at 30.09.24, C accumulation share class, total return, net of fees and income reinvested. Fund inception date is 31.12.01; the current fund managers’ inception date is 31.07.17.

For a comprehensive list of common financial words and terms, see our glossary at:
https://www.liontrust.co.uk/benefits-of-investing/guide-financial-words-terms