Simon Clements expects economic momentum and investment to broaden as markets adjust to higher interest rates, benefitting sectors such as construction and industrials which were overshadowed last year by AI-driven growth. He also highlights a new addition to the Fund within the team’s water management theme.
Simon: The Sustainable Future Global Growth Fund delivered 5.27% over the quarter. This was behind the MSCI World, which delivered 6.93% over the same period. It did however comfortably outperform the IA peer group, which delivered 3.52% over the quarter. This put the Fund firmly within the second quartile of the peer group. Over 12 months, the Fund delivered 8.83%, which was behind the MSCI World, which delivered 20.8% for the year. The peer group over the same period delivered 12.59%. So the Fund finished in the third quartile for the full year 2024. The continued outperformance of big cap technology stocks over the year has been a headwind for the strategy. The key driver of better performance over the final quarter was the performance from those themes benefiting from a more balanced investment, particularly within the US economy, as the new Trump administration takes power. Paylocity within our 'Enabling SMEs' theme was a good example of this. The HR software leader will benefit from a pickup in SME activity, as this sector of the economy has been hurt by the rapid rise in interest rates in the past 18 months or so.
One theme we're particularly excited about now is 'Improving the Management of Water'. Water shortages are a huge problem across the globe and none more so than in the US, the world's largest economy. US water infrastructure is made up of more than two million miles of underground pipes which need upgrading. The average age of this infrastructure is 45 years And the US loses $2 trillion gallons of water a year, which is around 15% of total drinking water which is treated. Core & Main is a new idea in the Funds, and they're the leading distributor of pipes, valves and fittings to help control the flow of water. Increasingly, they are also distributing technology such as digital metres, which help ensure leakages are minimised. The structural driver of their growth remains very strong, but the cyclical exposure they have has translated to weaker near-term earnings, as a lot of water infrastructure tends to be upgraded when tied to construction projects, which have been really depressed over the past 12 months. We expect these markets to recover into 2025, as the new Trump administration enacts policies which aim to stimulate growth in both residential and non-residential construction. We see the combination of cyclical and structural tailwinds. as a powerful driver for the Core & Main stock as we enter 2025. 'Improving the Management of Water' is a theme which we continue to find great ideas in. The combination of structural growth and high-quality companies, which can deliver solutions to the acute problems of widespread water shortages across the US economy.
We expect economic momentum and overall investment within the economy to broaden as the economy moves forward and adjusts to higher interest rates. Growth has been weak across parts of the global economy including anything construction related as well as sectors such as industrials which have recessionary conditions. We expect these sectors to improve. as the reliance on AI to drive growth begins to fall. This should provide a backdrop supportive to strategies which invest broadly across 22 investment themes, as well as support the mid-cap style by which we tend to invest.
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
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.
The Funds managed by the Sustainable Future Team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that 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 a Fund.
- May hold Bonds. 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.
- 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.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Future 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.
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