9th March 2016
Stephen Bailey discusses Liontrust's Macro Equity Income & Liontrust Macro UK Growth funds
Stephen Bailey and Jan Lutterman have managed funds together since 1999. In February, we caught up with Stephen to talk about the Elite Rated Liontrust Macro Equity Income & Liontrust Macro UK Growth funds.
What's your investment approach?
As the name of the funds suggest, we look at the big macroeconomic picture and try to find the themes that are currently, and will be, affecting the global economy over the medium to long term. We then make sure the portfolio fits with how the world is working.
What is your current view on the world?
We expecting the British pound to continue to lose value against other currencies in the run up to the EU referendum. Some commentators are saying it could go as low as $1.17, which would be a boon to dollar-denominated and US-listed firms.
Gold is yesterday's trade. Markets are nowhere near where they were in 2007-2008 when 'fear' was at a real high. Current market fears are overplayed in our view. The global economy is growing, only slowly. China has enough in its armory to avoid a disaster and, with the exception of those producing it, emerging markets should perk up due to the low oil price.
The European bank crisis hasn't yet been properly resolved, but negative interest rates are not the solution. UK banks are being encouraged to sell off more assets to increase competition and to make sure there is no systemic risk of a banking collapse again.
Some investors are worried about the sustainability of dividends at the moment. What are your thoughts on this in terms of the Income fund?
We are finding it difficult to find good income payers at the moment and are avoiding the traditional areas at present. Instead, we are looking overseas to increase our dividends and currently have 19% invested in businesses outside the UK. For example, we have holdings in US pharmaceutical and telecoms companies.
Telecoms is an interesting sector. It is still very much unloved – a hangover from the dot-com bubble. But these companies have reshaped their businesses well and are becoming larger content providers. At present, they are struggling to monetise the consumer growth they are getting, but they are consolidating their position in the market and attracting more consumers. Disinflation across the consumer sector is also driving revenue here: increased disposable incomes are encouraging people to combine and enhance TV, Internet and mobile packages, for example.
We are still not keen on established banks but we think challenger banks are in a good position to capitalise with tailor-made models. We're avoiding high mortgage lenders as part of a strategy to reduce our housing exposure. We are also underweight tobacco, mining and oil companies.
There are currently 48 holdings in the Income fund - the lowest number we have ever had. There are also more large companies than usual. Overall, the fund is overweight global healthcare, wealth managers, asset managers and life insurance, challenger banks and global telecoms.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Stephen's views are his own and do not constitute financial advice.
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