Liontrust Global Dividend Fund

The Liontrust Global Dividend Fund continues to invest in innovative global leaders, buying companies on the right side of AI at cyclically depressed prices ahead of a new innovation cycle.

• January saw investors digest President Trump's return to office, significant developments in artificial intelligence and the start of fourth-quarter earnings season
• Despite near-term market noise, we continue to see excellent opportunities to invest in innovative global leading businesses plugged in to emerging structural growth trends across the industry spectrum.
• Constellation Energy topped the Fund’s positive contributors on improved sentiment for nuclear power generation under the Trump administration, while wafer fab equipment specialists Applied Materials and Lam Research rose on the back of good results which were underpinned by AI demand.

Performance overview

The Liontrust Global Dividend Fund returned 5.6% in January, placing it in the 1st quartile of peers and ahead the IA Global Equity Income sector average of 5.0% and the MSCI World Index return of 4.4% (both comparator benchmarks).

Longer term performance remains strong, with the Fund having returned 135.7% since manager inception (31.08.17), placing it 2^nd in the IA Global Equity Income sector where the average return was 76.2% over the period. The MSCI World Index returned 129.2%.

Market backdrop

January proved a highly dynamic start to 2025, with markets shaped by President Trump's return to office, significant developments in artificial intelligence that prompted widespread investor reassessment of the sector, and the commencement of fourth-quarter earnings season setting expectations for the year ahead.

US President Trump's return to office on January 20^th was initially well received by markets, animal spirits propelling the S&P 500 to new highs as investors focused on prospects for tax breaks and pro-business policies. While still early in the new administration, President Trump has moved swiftly to implement significant policy adjustments through various mechanisms at his disposal, including executive actions. As expected based on his campaign rhetoric, his "America First" agenda has quickly taken shape through withdrawals from global organisations and a widely forecasted threat of tariffs – initially focused on key trade partners Canada, Mexico, and China. There is also a heightened focus on improving government efficiency, with the newly implemented Department of Government Efficiency (DOGE), spear-headed by Elon Musk, ramping activity into month end.

This evolving policy backdrop contributed to heightened uncertainty late in the month, and while the Federal Reserve's decision to pause its recent string of rate cuts at its late-January meeting was largely anticipated, the shifting policy environment has added complexity to its outlook. Nonetheless US growth appears healthy, especially compared to regions such as Europe where the European Central Bank (ECB) opted to implement another 25 basis point reduction – its fifth cut since mid-2024 – citing concerns over stagnant growth alongside optimism regarding inflation reduction.

The new Trump administration has also shown strong early support for US artificial intelligence ambitions, declaring a national energy emergency to reduce environmental restrictions and boost US drilling while also aiming to streamline regulatory processes and accelerate energy infrastructure projects to support high demand from AI applications. This was followed by the announcement of "Project Stargate" – a joint venture between OpenAI, SoftBank and Oracle that will invest up to $500 billion over the next four years in US AI infrastructure. Trump framed this initiative within a broader narrative of sovereign AI development and American job creation, positioning it as critical for national security in the technological race with China.

Meanwhile, private sector AI infrastructure spending continued to accelerate in January. Early in the month Microsoft announced plans to spend $80 billion on AI datacentres this year, while Meta, following a $10 billion AI datacentre announcement in December, announced plans for $60-65 billion in CAPEX for the year ahead – a spend increase of over 50% on 2024. Supporting these ambitions, global foundry TSMC also signalled strong demand for next-generation chip manufacturing, raising its FY25 CAPEX guidance well above consensus to $38-42 billion.

This heightened AI infrastructure spending context made market reaction particularly acute when China-based startup DeepSeek released its landmark "R1" model late in the month. Built on the company's V3 mixture-of-experts framework, DeepSeek-R1 reportedly matched the performance of OpenAI's then-frontier reasoning model o1 across maths, coding and reasoning tasks – yet at 90-95% lower cost. This development shocked markets, with leading AI hardware companies – most notably Nvidia – selling off dramatically as investors questioned the existing AI scaling narrative and future infrastructure spending requirements.

However, there were some important nuances beyond the headlines. While DeepSeek’s models have undoubtedly delivered the sort of exciting efficiency breakthrough that we would expect to see in a novel technological field like AI, their headline $5-6 million training cost likely significantly understated the true cost of training and running R1. Further, DeepSeek’s models likely relied heavily on distillation – leveraging existing leading models from the likes of OpenAI to train their own – rather than pushing the frontiers of model intelligence itself.

Importantly, we believe the extreme negative market reaction was both overstated and misdirected. Lower AI system prices are likely to accelerate rather than diminish compute requirements – following the Jevons paradox, where greater efficiency leads to higher overall consumption. In short, as the cost of AI goes down, we need more compute, not less; we need more power, not less; and we need more electrical equipment for data centres, not less. This was reinforced via company earnings updates within days of the DeepSeek news, with both Microsoft and Meta reiterating their substantial AI infrastructure investment plans for the year ahead. As such, we continue to believe that the major structural trends associated with AI development, scaling, and propagation remain alive and well; that we are entering a new innovation cycle driven by AI; and that the winners of this cycle will be different to the last.

Company updates

January wrapped up with fourth quarter earnings season in full swing – these company updates providing us with valuable insights as to how companies across our Fund and watchlist are positioning themselves as we enter the new year. Importantly, in spite of near-term market noise, we continue to see excellent opportunities to invest in innovative global leading businesses plugged in to emerging structural growth trends across the industry spectrum.

Constellation Energy, the world’s leading nuclear provider, was the top contributor to Fund performance in the month, a beneficiary of improved sentiment for nuclear power generation under the Trump administration – including support commentary regarding localised generation for AI data centres that had faced regulatory hurdles under the last administration. The company remains incredibly well positioned to benefit from structural demand for clean energy, with ramping AI datacentre demand adding to already robust requirements from broader electrification trends and an over-arching supply/demand imbalance. Conversely, the same policy backdrop proved a headwind for Brookfield Renewable Partners, the stock selling off on concerns regarding potential policy changes (including tariffs and tax credits) negatively impacting renewable energy providers. We believe these regulatory concerns are overstated – tariffs and any changes to tax credits (which we don’t expect) would simply be passed onto customers. Brookfield has the negotiating power, and its underlying fundamentals remain incredibly strong – the company is seeing unprecedented demand from technology companies seeking reliable, low-cost power sources, with an established development pipeline of 200,000 megawatts representing a significant competitive advantage at a time when advanced, ready-to-build capacity remains scarce. This was evident in its fourth-quarter update, where funds from operations grew 21% year-over-year, well ahead of expectations. We see financials accelerating in to 2025, and took the opportunity to top up our position in the month.

Applied Materials was another top contributor to January Fund performance, rising alongside wafer fab equipment peer Lam Research (also held) which delivered particularly encouraging results late in the month. As chips grow larger and more complex to drive AI performance gains, they require increasingly sophisticated materials engineering and manufacturing processes, particularly in deposition and etch where both companies maintain leadership positions. This was evidenced in Lam's fourth-quarter update, which highlighted how new chip architectures are driving exponential increases in tooling intensity – manufacturing a High-Bandwidth-Memory chip, critical for AI applications, requires three times more tools than a traditional memory chip. The company also reported strong signs of recovery in the NAND memory market, with 139% sequential growth as manufacturers upgrade to higher layer counts to achieve better performance at lower costs. With consensus estimates beginning to climb but share prices still well below recent highs, we believe both companies are well positioned to benefit from these powerful secular drivers for some time yet.

Thermo Fisher Scientific was another strong contributor following an encouraging fourth-quarter update. The global leader in life sciences continues to gain meaningful market share, with particularly strong performance in analytical instruments where revenues are growing 8% year-over-year. The company's recently launched Accelerator Drug Development solution, which combines its contract development and research capabilities, is already winning new business through its unique integrated approach to drug development. With management expressing confidence in an improving industry backdrop through 2025 and ongoing market share gains driven by sustained innovation, Thermo Fisher remains well positioned to deliver continued earnings growth and maintain its impressive dividend growth track record (15.5% five-year CAGR).

Elsewhere, Meta’s late-January update provided us insights into how this first-mover continues to benefit from embedding AI across its business model. Meta has initially focused on using AI for cost reduction – operating margins expanding dramatically from 20% to 48% over the last two years – but is now also seeking to use AI to enhance customer experience and improve its ad offering (AI-driven ad placement driving a 14% year-on-year improvement in platform pricing as the right ads are delivered to the right person at the right time). The company continues to operate and invest efficiently, reflected in its return on investment improving from 18% to 28% since 2019 despite substantial capital expansion. Importantly, Meta is about to break ground on a giant 2GW datacentre − funded by efficiencies gained across the company from the first stage of AI deployment. This facility will support Meta AI, which already serves 700 million monthly active users and targets becoming the first AI assistant to reach 1 billion users in 2025.

On the other hand, key detractors to January Fund performance included Impax Asset Management and Novo Nordisk, both impacted by lingering concerns following developments we reported in December. Impax continued to face headwinds after losing a £5.3 billion St James's Place mandate, though we selectively added to our relatively small position mid-month as the stock fell below our assessment of fair value. Meanwhile, Novo Nordisk saw extended weakness following a disappointing clinical trial result in late December. We viewed this reaction as overdone given the company's strong pipeline and leadership position in the expanding GLP-1 market – a c.$100 billion opportunity, less than 1% penetrated – and took advantage of the weakness to increase our position sizably mid-month.

More broadly we maintain our strict valuation discipline, allocating capital to innovative global leaders where we see the greatest upside opportunity. This meant we were particularly active later in the month following the DeepSeek news and subsequent severe market dislocation, adding to positions in a number of companies hit hard, including key large holdings (e.g. Broadcom and Amphenol) as well as smaller positions or watchlist companies which we had been prevented from adding to on valuation grounds. Notably we were able to re-initiate a position in Schneider Electric, which we had previously sold in Q3 2024 on valuation grounds. When reporting strong results late in the month, Schneider's closest global competitor, Eaton (also held and topped up), told us that any notion of its market slowing down is simply not consistent with any of the data it is seeing. The construction backlog for data centres in the US alone doubled last year and now stands at $234 billion – even if greater AI efficiency did not fuel more consumption (which we strongly believe it will), at current build rates it would take seven years to consume the current backlog.

Other new positions added during the month include Antofagasta, offering exposure to copper demand growth from electrification and AI infrastructure; Micron, whose memory products are critical to the AI build-out – a position we subsequently topped up following the DeepSeek-related weakness; and Sherwin-Williams, the world's largest paint manufacturer with a 13.7% five-year dividend CAGR, a quality compounder with cyclical exposure to recovering construction end-markets. On the other hand, we reduced or exited positions in companies when they reached target prices or we saw better upside opportunities elsewhere. In January this included trimming recent top performers such as Constellation Energy, Meta, and Thermo Fisher, as well as exiting positions in companies including BHP, Carrier, Dell, and Diageo.

Looking ahead

Entering February we are likely to continue to experience near-term noise from evolving policy dynamics under the Trump administration – especially trade policy and the efficiency-focused actions of the newly-formed DOGE. Nonetheless, we believe underlying fundamentals will continue to drive returns for companies across our Fund and watchlist, and thus remain focused on the ongoing fourth-quarter earnings season, where companies continue to provide insights into structural trends and their positioning for the year ahead.

Meanwhile the AI landscape looks set to remain dynamic, with incumbent players expected to respond to the recent DeepSeek developments. More broadly, we expect to see the AI acceleration and propagation story continue apace, with competitive advantages accruing to leading early adopter across sectors.

Despite this dynamic backdrop, we remain optimistic about the opportunities for innovative global leaders as we enter this new innovation cycle. As always, we will maintain our valuation discipline, focusing on companies that can deliver strong earnings and dividend growth by capitalising on structural trends while trading at attractive valuations.

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.

Key Risks

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments

■ 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.
■ The level of income is not guaranteed.

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.

Disclaimer

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It 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.

This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, 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. 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.