Liontrust Income Fund

The Liontrust Income Fund returned -1.5% over the quarter, underperforming the -0.4% return from its comparator benchmark, the FTSE All Share Index.

UK equities declined slightly in the fourth quarter, with China-exposed stocks and AstraZeneca underperforming. However, this was partially offset by strong gains in the financial sector, led by HSBC, Barclays, and LSEG (London Stock Exchange Group). The newly elected Labour government delivered its first budget with a mixed impact expected on the UK retail sector in particular. Higher NICs will add cost pressure to labour intensive companies, which companies will look to offset with price rises and efficiency gains, to varying degrees.

From a sector perspective, the Fund’s underweight in the financial sector weighed on performance, as did the underweight in consumer staples. Overweight positions in information technology and healthcare contributed to performance.

Positive stock attribution

The most significant contributors to relative performance over the quarter were overweights in banking group NatWest and construction contractor Morgan Sindall, and an underweight in pharmaceutical giant AstraZeneca.

NatWest delivered strong third quarter results that exceeded expectations, prompting a raised guidance. Morgan Sindall also upgraded guidance following strong orderbook growth resulting in improved visibility. The weakness in AstraZeneca was driven by an investigation into the president of its Chinese division. >

Negative stock attribution

Detractors from performance over the fourth quarter included an underweight in banking group HSBC, and overweights in SEGRO and pharmaceutical multinational GSK.

HSBC delivered strong results, beating expectations, and announced a new $3 billion share buyback, which drove its stock higher. Segro underperformed during the fourth quarter in line with a move higher in gilt yields. GSK underperformed with marginally weaker than expected vaccine performance, which is a key growth driver for the business.

Trading activity

We increased the positions in Segro and Grainger in the quarter and initiated a new position in National Grid.

Segro is a leading owner, manager and developer of warehouses and industrial property. With high-quality assets strategically located in prime areas, Segro is well-positioned to benefit from structural trends, including the growing demand for data centres, which continue to drive long-term growth opportunities.

Grainger is a leader in the growing professional build to rent property sector. The supply-demand dynamic of this sector is attractive, with consistently strong demand for high quality rental properties, set against a supply side dominated by private rental landlords who are likely to struggle with new energy efficiency regulations.

National Grid is a leading US and UK regulated utility, playing a critical role in the global energy transition. The company is exposed to the strong structural growth tailwind of electrification as a result of global moves to decarbonise, providing medium-term earnings visibility. We initiated the position following National Grid strengthening its balance sheet through a rights issue and a dividend cut, leaving it better equipped to capitalise on these trends over the medium term.

Outlook

Across global markets, risks remain high with multiple volatile geopolitical situations and growth challenges. The re-election of Donald Trump also increases the risk of global trade wars. Closer to home we are considering the increase in employer National insurance rates following Labour’s budget, which are a headwind for the more domestically orientated holdings in the portfolio. It is important to consider the extent to which companies are able to offset the increase to their cost base through efficiency gains and price rises, and the impact these may have on employment in the more labour-intensive retail sector, and household available cashflow. Our focus remains on constructing a well-balanced, and diversified portfolio of advantaged businesses. Our confidence in the medium-term outlook for the portfolio comes from the excellent strategic, operational, and financial progress that the vast majority of the companies in the portfolio have made (and continue to make) over the last couple of years.

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

*Source: FE Analytics, as at 31.12.24, primary share class, total return, net of fees and income reinvested

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.

■ Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result;
■ 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.
■ 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 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.

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.