Liontrust Global Alpha Fund

• Global equity markets started the year well, driven by the US equity markets which continued to move higher on the expectations that a Trump administration would be positive for Wall Street. Europe also performed strongly, closing the valuation discount to the US amid a wave of optimism over reforms. Against this backdrop, the MSCI AC World index reached an all-time high in mid-February.

• However, March saw optimism fade as US growth expectations moved lower on growing uncertainty around Trump policy and newsflow surrounding DOGE, whilst in Europe fiscal response has been more forceful than expected. Value stocks and emerging markets were the relative outperformers.

• Energy, utilities and financials outperformed while information technology and consumer discretionary sectors were the clear losers over the quarter. Specifically, the ‘Magnificent Seven’ sold off, ending the quarter some 16% lower (BBERG MAG7 Index).

The Liontrust Global Alpha Fund returned -6.6%* over the quarter, compared with the -4.3% return of the MSCI ACWI Index comparator benchmark and the -4.5% average return in the IA Global sector (also a comparator benchmark).

Market backdrop

The first quarter 2025 felt like a repeat of 2022 with the S&P 500 Index falling 5.1% as rotation out of the ‘Magnificent Seven’ continued with AI-related fervour subsiding. Tech-heavy Nasdaq unsurprisingly suffered more, falling 8.2% with semiconductor names – AI flag bearers – falling 14% in aggregate. The comparison to 2022 is eerie, with an almost identical Q1 pullback which preceded a very ugly Q2 causing investors to take a more cautious stance in March.

Increased rhetoric from the Trump team around tariffs also pervaded the quarter (they didn’t become reality until 2^nd April in Q2) with investors positioning becoming more defensive. The prospect of higher tariffs on Chinese goods had a particular impact on domestic US consumer names and outlook for US consumption growth overall which inevitably fed through into rising expectations for inflation, a drag on the prospect for rate cuts in 2025.

Given the Mag7 contribution to S&P returns over the last three years, it’s unsurprising that the Q1 weakness was also driven by Mag7, with 70% of the S&P fall coming from those names. Nvidia fell 18%, Alphabet 18%, Apple 13%, Amazon 12% and Microsoft 10%. The outliers bookending the group were Meta, which dropped just 1.5% in the quarter, and, most notably, Tesla, which fell a whopping 35% as delivery numbers from across the world came in significantly lighter than expected – in some cases, as much as 50% lower than the previous year.

Portfolio review

Diversification proved valuable in the Q1 through our greater exposure to Europe, Japan and China. China was in fact the highest contributor to geographic returns, with the index rising 11.6% over the period, and our holding in Alibaba (+51%) topped the contribution table. In our view this reflects not only the deep valuation discount of the China market but also the impact of Deepseek’s disruption of the AI sector with investors reassessing prospects in light of its Alibaba Cloud unit’s heavy investment in Qwen AI models

The Fund also benefitted from action taken to lower our technology exposure early in the quarter, especially our under-weight of Mag7 with our non-weights in Apple and Tesla proving especially positive. Cloudflare and BayCurrent were other portfolio highlights ranking in the top five contributors over the quarter.

Drags to performance came largely from our positions in Block (-42%) and Coinbase (-33%). Digital payments group Block suffered after Q4 revenues fell short of investor expectations with the shares giving back the Q4 performance of +24%. Coinbase also saw profit taking following the staggering +80% rally the shares experienced post the Trump election victory.

Portfolio Changes

During the quarter, we reduced exposure to US and long-duration growth companies, while increasing exposure to non-US markets in line with our 2025 outlook. Notable additions include:

• Plus500, the AI enabled online trading platform. We anticipate it will continue to generate robust growth as it expands globally into large new markets.

• Rolls-Royce: Strong cashflows from aero engine and power systems, focused on developing small modular reactors.
• Schneider Electric: Benefitting from global investment in industrial automation and electrical infrastructure upgrades.
• BYD: Chinese electric carmaker developing autonomous driving and fast charging solutions.

We funded this through divestments of:

• Samsara, Shopify, and ServiceNow based on valuation considerations as we reduced exposure to longer-duration holdings.
• Thales and Intuit where we saw less upside

Outlook

It is easy to see how an outsider could be forgiven for thinking that US economic policy is being created on the fly. The method of calculation for the significant tariff increases has been ridiculed and, at the same time, in just a week saw significant policy pull back and change, culminating in a 90-day suspension of all tariffs above 10% while terms are negotiated with specific countries.

The market voted very clearly on this uncertainty. In times of trouble, it would be normal for money flows to seek out the US dollar and treasuries as safe havens. In this case, that has not happened. In fact, the US 10-year yield increased 60bps in the week following the tariff announcements, marking its sharpest increase since 1982. Gold, the Swiss Franc and Yen looked like the safer haven assets with gold rising to consecutive highs throughout the reactionary period post 2nd April.

The move to suspend the new tariff levels on Wednesday 9 April, just a week after their introduction, resulted in a 12.5% up-move in the Nasdaq Index and 9.5% in the S&P 500 – the third largest single day up-move in equity market history, surpassed only by days in 2008 and 2001 during the Global Financial Crisis and the dotcom boom-bust. Incidentally, neither of these two bigger moves marked the bottom in markets during those two periods. Based on data showing significant short covering on this move higher, we have to believe it is likely the bottom is not in place here either.

As laid out in last quarter’s outlook, we remain convinced the concentration in a narrow selection of US companies is set to change. Passive investment flows, American exceptionalism and the AI revolution have all contributed to a very narrow group of winners. This set up was already of concern but it was not clear what the catalyst would be for it to change – it seems quite likely that the new Trumpian economics might well be that catalyst.

Following a sharp rally after the US elections in November, 2025 has seen the beginning of a rapid unwind – most clearly seen perhaps in the share price of Tesla. It rallied 40% from the election to the end of 2024; in 2025, the shares have fallen 37%. Another reversal of fortunes has occurred in semiconductors where the SOX index had a two-day drawdown of 17% in week beginning 7 April –the worst such move since the 1970s. There is not a single SOX constituent that rates positively on the Global Equity Team’s T-Score relative indicator.

We strongly believe that risk reward now favours more diversification away from passive core index strategies, Magnificent Seven and American exceptionalism.

The concentration of money flows into such a narrow portion of the market also leaves a level of vulnerability from the upcoming earnings season. We cannot see many companies brushing aside the tariffs and related earnings issues. At best, we may see guidance removed; at worst, it is likely that guides are lower. Investment levels are also likely to be cut as no one has any idea what the tax (tariff) implications will end up being.

All this concern and likely relative derating of the US leads us to continue to favour diversification into other geographies. Europe remains very cheap historically; India looks like a relatively tariff unaffected growth story and we still believe that China holds value based on the significant de-rating of names there. In fact, one feature of the protectionist policy on IT and AI that America has been pursuing is that of reduced innovation in the US market itself. Deepseek was a great case in point.  Faced with losing access to the most powerful chipsets in AI, the Chinese have had to be far more innovative and they have been just that. Could the reluctance of the US to make their hardware available to China end up leaving then lagging in certain areas of innovation? 

Within the US equity market itself, we believe diversification is also important. On a top level, the S&P Equal Weight is expected to outperform the S&P. We look towards similar types of diversification in US equity portfolios.

Finally, it seems clear that volatility and uncertainty are here to stay for the time being and so safe haven assets should form a bigger part of  any portfolio. Gold has been a stellar performer and that is likely to remain so. Safe haven currencies like the Swiss Franc and the Japanese Yen have done well since the tariff announcement and this is also likely to continue making assets in these markets interesting. 

In conclusion, risk levels have increased; Trumpian policy is unclear and subject to change on a coin toss. Equity risk premia increase on that basis and diversification both within the US equity market and more broadly on a geographic basis makes sense. The Q1 earnings season is likely to be very cautious and can only result in raised concerns for those companies that are in the eye of the tariff storm. We still see many opportunities in equities with significant polarisation between winners and losers, an ideal backdrop for active managers.