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Liontrust - Global Equity

The Global Equity Process

Investment Philosophy

The Liontrust Global Equity team believes that the key to replicable long-term investment outperformance is generating ‘idiosyncratic alpha’: returns that are independent of market returns and largely uncorrelated to the successes and failures of popular investment styles like growth and value.

While investment styles such as value and growth enjoy periods of success, they can quickly lose efficacy as economic conditions change, leading to periods of disappointment for investors if too much reliance is placed upon them. Idiosyncratic alpha exhibits much greater persistence as the economy evolves over time.

Investment Process

The Global Equity team seeks to generate idiosyncratic alpha through an investment process with three key elements:

  1. Collaborative Idea Generation: each member of the team has a research responsibility covering an industry sector of the global economy or structural economic trends. This division of labour underpins the collaborative original research and peer challenge required for the flowing generation of idiosyncratic investment ideas.

     

  2. Culture of Conviction: to enable idiosyncratic ideas to drive investment returns, they must be given sufficient weight in portfolios and sufficient time to work, which is shown by the number of stocks held and the average stock holding period.

     

  3. “Three Silo” Portfolio Construction: the funds are balanced with respect to popular investment styles, such as value and growth, to ensure that ideas and idiosyncratic alpha drive returns. The portfolios comprise three silos of stocks. These silos have low correlations with one another and when combined provide diversification to mitigate against the transitory fortunes of investment styles.

This philosophy and process is implemented through the following four-step workflow:

i)Stock Idea Generation: stock ideas are generated by combining the team’s collaborative global research focused on industry and economic trends with the quantitative screening of company fundamentals, including revenue growth, profitability and cash flows. This combined top-down and bottom-up approach to idea generation helps identify excellent companies that are positively exposed to powerful trends.


ii)Stock Selection:
the resultant stock ideas are subjected to an in-depth evaluation of value creation opportunity, corporate strategy and management quality. This involves building financial models and meeting company management. Companies identified during this stage as possessing a significant opportunity to create value, typically over a three-year time horizon, and the management capability to execute are selected for the portfolio.


iii)Portfolio Construction:
the size of new investments in the portfolio is determined by the consideration of three factors: the size of the investment’s value creation opportunity, its riskiness and the degree of diversification it offers to the existing portfolio. To aid portfolio construction, stocks are assigned to one of three silos within the portfolio, representing growth investments, value-turnaround investments and more tactical plays. The balance of the three silos is maintained within optimal ranges to help manage the risks posed by overreliance on any particular investment style and to ensure that the portfolio’s returns are driven by the team’s idiosyncratic investment ideas.


iv)Monitoring and Exiting:
once an investment has been made, it is monitored on an ongoing basis against the valuation creation opportunity identified at the stock selection stage. This involves regular meetings with company management, evaluation of new information and updating of financial models.

Investments are exited either once the valuation creation opportunity identified in the investment case has been successfully realised and become well reflected in the stock price or when the prospect of realisation has significantly deteriorated for fundamental reasons.

Global Equity Team
The Global Equity team

The Liontrust Global Equity team manages 19 active funds and has an average of 12 years’ investment experience between them. Led by Robin Geffen (right), who is the architect of the investment process, supported by James Dowey (left), the team manage a suite of actively managed funds in the form of global and specialised regional portfolios. The entire fund range is managed according to the same investment process, which is founded on collaborative idea generation, a culture of investing with conviction and three silo portfolio construction. The team transferred to Liontrust in October 2019 as part of the acquisition of Neptune Investment Management.

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Funds

Key Risks 


Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

Disclaimer


The information and opinions provided 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. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing. 

Source: Financial Express. Total return, bid-to-bid. This page is showing performance data and information for an income producing share class. Please go to our Interactive Fund Centre for performance data and information on the Fund’s other share classes.

© 2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance is no guarantee of future results.

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