Liontrust Global Dividend Fund

• December capped a volatile year shaped by post-Covid recovery, inflation, policy shifts, geopolitical events, and rapid advancements in AI and machine learning.
• Broadcom, TSMC and Blackstone were among the top performers over the month, while Impax Asset Management and L’Oreal led the detractors.
• The strong fundamentals demonstrated by our holdings throughout 2024, coupled with their strategic positioning to capitalise on these emerging opportunities, instil us with great confidence in the portfolio's potential heading into 2025.

Performance overview

The Liontrust Global Dividend Fund returned -0.1% in December, placing it in the  1^st quartile of peers and ahead the IA Global Equity Income sector average of -1.7% and the MSCI World Index which returned -1.2% (both comparator benchmarks).

For the fourth quarter of 2024, the Fund returned -0.6% placing it in the 4^th quartile of peers, and behind the IA Global Equity Income sector average of 1.6% and the MSCI World Index which returned 6.9%.

This rounded out 2024, where the Fund returned 14.0% for the year, placing it in the 1^st quartile of peers, ahead of the IA Global Equity Income sector average of 11.0% and behind the MSCI World Index which returned 20.8%.

Longer term performance remains strong, with the Fund having returned 123.2% since manager inception (31.08.17), placing it 2^nd in the IA Global Equity Income sector where the average return was 67.8% over the period. The MSCI World Index returned 119.6%.

Market backdrop

December rounded out a year characterised by high volatility and swings in consumer, business and investor sentiment off the back of an ongoing recovery from Covid-era disruption and inflation, shifts in central bank and government policies, significant geopolitical activity, and persistent noise surrounding rapid advancements in artificial intelligence (AI) and machine learning (ML).

2024 was an unprecedented year for global democracy, with approximately half the world’s population voting in elections across more than 70 countries worldwide. Outcomes of these elections suggested a generally difficult year for incumbent parties globally, with economic challenges a consistent theme across elections. December marked a particularly volatile end to this politically heightened year, with an ongoing South Korean political stalemate culminating in significant upheaval early in the month, ultimately resulting in Choi Sang-mok stepping in as both acting President and Prime Minister shortly before year-end. Similarly, the French parliament passed a no-confidence vote against Prime Minster Michel Barnier’s government, forcing its collapse after just three months in office and leading to François Bayrou heading up France’s fourth government in 2024 alone. While unlikely to impact the fundamentals of high quality businesses operating across these regions, these sort of geopolitical developments speak to a complex landscape of political uncertainty which could influence global markets and international relations heading in to 2025.

In the US, we continued to see reverberations from Donald Trump and the Republican Party’s decisive November election sweep, largely regarded as supportive of US businesses and ‘American Exceptionalism’ thanks to anticipated pro-business policies and corporate tax cuts. However, the implementation of further trade restrictions in December from the current Biden administration – focused primarily on Chinese imports and semiconductor equipment – led to more mixed views on the potential impact of an even stricter tariff regime under the incoming Trump administration. Throughout December, the President-elect continued to announce key cabinet appointments, largely in-line with Trump’s more hawkish approach to international policy, though also supportive of relatively new assets and technologies such as cryptocurrency (resulting in a spike in Bitcoin, briefly surpassing the $100,000 level mid-December) and importantly ongoing advancements in AI.

Meanwhile a broad trend of softening inflation data enabled most key central banks to pivot to a loosening phase throughout the course of the year. As anticipated, this trend continued in December with both the US Federal Reserve and European Central Bank cutting interest rates a further 25 basis points to each total 100 basis points of rate cuts over the course of 2024. However, commentary regarding the path of future rate cuts caught more bullish market participants somewhat off-guard as the Fed indicated that it would likely implement only two interest rate reductions in 2025, down from the four cuts it had forecast in September. The VIX volatility index, which briefly spiked to near-crisis levels back in early August following the infamous unwind of the Yen carry trade, jumped again as markets digested this news before settling to more normalised levels by year-end.

Elsewhere, the Bank of England opted to maintain interest rates at 4.75% at its December meeting, for a more cautious total of 50 basis points of cuts in 2024 as officials seek to balance softening inflation against ongoing economic sluggishness. Meanwhile in China we heard additional supportive policy commentary around the time of their annual Central Economic Work Conference in early December, supportive of a larger fiscal deficit and easier monetary policy, underscoring a drive to resolve property issues which have been an overhang on consumer and business sentiment. This commentary was well received and adds further weight to the incremental stimulus program the Chinese Government started rolling out throughout the latter half of the year, though substantial evidence of broad-based economic recovery has remained elusive so far.

Against this noisy backdrop, December culminated a year of significant advancements in AI and ML, with progress evident across a broad range of applications from drug discovery and mathematics to content recommendation systems. In the creative space, OpenAI's Sora text-to-video model – first previewed in February – was made publicly available across a range of geographies in December. Autonomous driving technology also made steady progress throughout the year, with Waymo expanding its robotaxi operations across the US, while Tesla announced plans to enter this market in a meaningful way in the coming years supported by its ongoing advances in Full Self Driving (FSD) technology − the company released its FSD 13.2 model in December, a substantial 5-6x improvement from its predecessor in terms of necessary human intervention. 2024 also highlighted the disruptive potential of AI-native businesses in domains such as software and web search, with both Google and OpenAI bringing new AI-search products to market to compete with startups like Perplexity. This competitive disruption is likely to accelerate following the key AI breakthrough of 2024 – reasoning – as first demonstrated by OpenAI's o1 model (released in preview in September), which advanced from intuitive to analytical thinking capabilities. This development has enabled more sophisticated use cases, notably AI agents capable of completing tasks end-to-end without human intervention. December proved particularly active on this front, with the likes of Google releasing Gemini 2.0 with enhanced reasoning capabilities, and OpenAI launching both the full version of its o1 model and announcing its next-generation o3 model – another huge leap forward in terms of model intelligence. Both companies have since expressed confidence in achieving Artificial Super Intelligence (ASI) in the near future. These significant advances into year-end reinforced several key themes which look set to continue in to 2025: ramping demand for compute to support AI model training and inference (hyperscalers  planning to scale to million-plus GPU clusters in the near future, with Microsoft pledging $80 billion for AI datacentres in 2025 alone); growing energy requirements to support this power-hungry technology; and the continued propagation of AI across the economy, creating new markets and kicking off a whole new innovation cycle.

Company updates

December rounded out the tail-end of the final earnings season of 2024. These updates − alongside our quarterly research trips to innovation hubs such as Silicon Valley, New York, and Boston − provide us with valuable insights into how companies across our Fund and watchlist are balancing a dynamic market environment alongside long-term structural opportunities. 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 in the years ahead.

Throughout 2024, 18 companies contributed 50 basis points or more to Fund performance. Unsurprisingly, given the ongoing infrastructure build-out to support the rapid advancements in the AI space, the top contributors to Fund performance in 2024 were Broadcom (global leader in networking and ASIC custom chip design), TSMC (the “world’s foundry”, global leader in advanced chip fabrication), and Blackstone (with a global leading datacentre portfolio).

Most notable was Broadcom, the strongest contributor to Fund performance in both December and 2024, rallying over 110% for the year. The company delivered a particularly strong fourth quarter earnings update mid-December that proved reminiscent of the "Nvidia moment" in May 2023, jumping over 40% for the month as it showcased incredible AI momentum and raised guidance well above expectations. AI revenues grew 220% year-on-year to reach $12.2 billion in 2024, with AI connectivity revenues quadrupling through strong adoption of its Tomahawk and Jericho products, while AI XPU shipments to its three key hyperscaler customers (Alphabet, Meta, and ByteDance) doubled.

Looking ahead, management expects this momentum to accelerate as it capitalises on its first-mover advantage in shifting to next-generation XPUs on 3 nanometre nodes. Broadcom highlighted its serviceable addressable market for these three ASIC customers alone will reach $60-90 billion by 2027, as all three customers embark on multi-year journeys to scale to clusters of 1 million XPUs to support next-generation models and AI propagation across the economy. The company continues to win new business, announcing two new hyperscalers – widely speculated to be Apple and OpenAI – selected Broadcom for ASIC development. Importantly, CEO Hock Tan highlighted that the company is incredibly well positioned to capitalise on the cluster scaling trend, as the ratio of networking to XPU/GPUs increases "exponentially" as clusters scale. This all supports strong earnings growth in the years ahead, facilitating ongoing investment in innovation while underpinning continued strong shareholder returns, evidenced by its impressive five-year dividend growth CAGR of over 14%.

Meanwhile TSMC rounded out the year by reporting another strong month of earnings, November revenue growing over 30% year-on-year driven by sustained strong demand for AI chips, despite concerns about potential slowdowns in data centre construction. Utilisation rates for the company’s advanced 5 nanometre and 3 nanometre processes reportedly remain at full capacity, with the company effectively sold-out of manufacturing capacity for the next couple of years. This led the company to upwardly revise its quarterly and annual forecasts, anticipating a 30% revenue increase in 2024, supporting earnings growth and underpinning its near 10% 5-year dividend growth CAGR. Having well and truly recovered from a cyclical bottom in 2023, and with competitors Intel and Samsung continuing to face challenges, TSMC is emerging even stronger in this new AI-driven cycle, well-positioned to accelerate earnings and capture value across compute upgrades in data centres, smartphones and PCs alike.

Outside of the technology sector, Blackstone also proved a key contributor to performance in 2024, benefiting from an improving US business environment where lower capital costs look set to reignite demand for private assets. The company has been strategically positioning for this cycle turn, as of its last update announcing it had deployed $123 billion over the past year, notably bolstering its position as the world's largest datacentre provider through the acquisition of AirTrunk. With an additional $100 billion datacentre pipeline and strong exposure to structural growth trends in private credit, the company appears well positioned for both capital appreciation and continued dividend growth in the years ahead. The company has delivered a strong 12.5% dividend CAGR over the past five years, supported by its market-leading position across alternative assets and ability to capitalise on emerging opportunities in infrastructure to support the ongoing AI revolution.

Elsewhere, healthcare company Eli Lilly, a global leader in diabetes and obesity treatment through its pioneering GLP-1 medications, emerged as another key contributor to performance in 2024. These breakthrough treatments, developed by both Eli Lilly and Novo Nordisk (also held), are widely considered the first 'super drugs' poised to not only substantially reduce global obesity rates but also lessen the healthcare burden from numerous related conditions. The staggering demand for drugs such as Mounjaro consistently exceeded supply throughout the year, further supported by strong efficacy data and continued label expansion beyond weight loss into new indications, including cardiovascular disease, sleep apnoea, and potentially even Alzheimer's disease. Despite occasional near-term manufacturing constraints, the company's pipeline remains strong, and with demand showing no signs of slowing, Eli Lilly continues to make significant investments in manufacturing capacity to maintain its leadership position in this rapidly expanding market. Given the addressable market remains only around 1% penetrated and is estimated to reach $100 billion, the company's strong positioning continues to support impressive earnings growth and shareholder returns, supporting a continuation of its strong 15% dividend five-year CAGR.

Conversely, key laggards to performance in 2024 included Impax Asset Management, Estee Lauder, and L’Oreal. Impax Asset Management was the biggest detractor in both December and 2024 overall. Following a tough year for UK asset managers, the company was dealt an idiosyncratic blow mid-December after losing a £5.3 billion St James’s Place (SJP) mandate to manage its Sustainable and Responsible Equity (SRE) fund, equivalent to around 14% of group AUM. This was disappointing given investment performance had been strong, but reflects a decision by SJP to diversify SRE using an alternative investment strategy. Impax remains an innovative global leader in sustainable investing with a strong presence in global institutional markets, but given ongoing challenges we continue to monitor the stock and hold a relatively small position in the fund.

Meanwhile we exited Estee Lauder in August on concerns regarding ongoing China market issues and potential weakening brand equity and share in its core US market. While the stock was a key detractor through the first half of the year, this exit proved astute as the stock fell heavily after a disappointing November earnings update where it cut its dividend, ultimately closing the year down near 50%. Similarly L’Oreal proved a key detractor to Fund performance, largely due to headwinds in the second half of the year from a weakened Chinese market. Nonetheless, the company is the global leading innovator in the consumer beauty space (spending over €1 billion on R&D annually – equivalent to its 3 closest peers combined), and remains our preferred play in the consumer beauty space with an 11.4% five-year dividend growth CAGR. As such, the company appears well-positioned for end-market recovery, supported by ongoing Chinese government stimulus efforts, and we took the opportunity to strategically top-up our position towards year-end.

More broadly, we continue to maintain our valuation discipline, trimming or selling companies as they start to reach our target prices and allocating capital when we see attractive upside opportunities. In December, we opted to exit our positions in Costco and Equinix after they achieved our price targets. We also took the opportunity to add positions in global leading businesses after near-term price dislocations provided more attractive upside opportunities, including leading health insurance company United Health Group, which suffered an idiosyncratic sell-off after the tragic murder of the group’s CEO, and Texas Instruments, which boasts a solid 10.4% 5-year dividend growth CAGR and, as a global leader in analog and embedded processing chips, appears well positioned for cyclical recovery and increasing semiconductor content across industries coming in to 2025. We also topped-up Novo Nordisk after the stock sold-off in late December following a disappointing clinical read-out, but which maintains a strong pipeline and leadership position alongside Eli Lilly in the rapidly expanding GLP-1 market supporting its impressive near-20% 5-year dividend CAGR.

Looking ahead

Despite the ongoing backdrop of macro and political uncertainty heading into 2025, we remain confident that fundamentals will continue to drive investment returns, particularly as we witness the accelerating adoption of transformative innovations across sectors. The once-in-a-generation technology platform shift associated with AI has potential to eclipse its predecessors by an order of magnitude, and we believe 2024 marked the beginning of a golden period for investing in innovation that will be multi-year in nature.

While this year saw the infrastructure build-out to support AI advancement, with new computing architectures replacing traditional systems in data centres globally, 2025 looks set to witness the meaningful diffusion of this technology across sectors. We are already seeing early adopters building stronger competitive moats and moving faster than peers as software is re-architected and industries are effectively re-written. However, the opportunity extends well beyond pure technology exposure. The rising power demands of AI deployment − with AI data centres proving 10 times more energy-intensive than their traditional counterparts – creates opportunities across the energy and industrial landscape. Meanwhile in healthcare, despite typical election-year headwinds in 2024, we see significant multi-year potential from innovators driving down the cost of care, particularly through breakthrough treatments such as GLP-1 medications which should benefit from greater policy clarity in early 2025.

As we look ahead, we remain focused on identifying and investing in innovative global leaders positioned on the right side of disruption across sectors. The strong fundamentals demonstrated by our holdings throughout 2024, coupled with their strategic positioning to capitalise on these emerging opportunities, instils us with great confidence in the portfolio's potential heading into 2025.

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

*Source: FE Analytics, as at 31.12.24, 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.

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