FMYA
Liontrust was a winner at this year's Fund Manager of the Year Awards in the Group of the Year and Europe categories. It was also highly commended in two categories: UK Smaller Companies and £ High Yield Bond.
Here, Investment Week hears from Samantha Gleave, fund manager of the Liontrust European Dynamic Fund, and Simon Hildrey, chief marketing officer at Liontrust, about factors contributing to the success of the fund and the group at this year's awards.
The Liontrust European Dynamic Fund took home the Europe award this year. Read more about the fund from Samantha Gleave here:
Can you give a brief overview of the team running the fund and the resources available?
The Liontrust European Dynamic Fund is managed by James Inglis-Jones and Samantha Gleave of the Liontrust Cashflow Solution team. James Inglis-Jones launched the Fund in November 2006 and was joined by Samantha Gleave in 2012. James and Samantha first worked together in 1998 and have an average industry experience of more than 25 years.
James previously managed funds at Fleming Investment Management, JP Morgan Fleming and Polar Capital. Samantha formerly worked at Sutherlands Limited, Fleming Investment Management, Credit Suisse First Boston and Bank of America Merrill Lynch. Samantha was in a No 1 ranked equity research sector team (Extel & Institutional Investor Surveys) at Credit Suisse and won awards for Top Stock Pick and Earnings Estimates at Bank of America Merrill Lynch.
What is key to your investment process on the fund and what are you trying to offer investors?
The Liontrust Cashflow Solution investment process seeks out companies that generate significantly more cash than they need to sustain their planned growth yet are lowly valued by investors and are run by managers committed to an intelligent use of capital.
The fund managers apply two equally weighted cash flow ratios to the European (ex-UK) investment universe, creating a composite ranking that narrows the universe to the stocks with the best free cash flow generation and the most attractive valuations.
The top 20% of the ranked stocks - the Cashflow Champions Watchlist - are subject to qualitative analysis.
The Fund holds an equally weighted portfolio of 30 to 50 stocks. The fund managers deploy proprietary indicators which allow them to identify the prevailing market regime and dynamically adjust the portfolio's style exposure, such as tilting to growth or value.
How has the team negotiated difficult market conditions in 2022 and what is the longer-term impact for the strategy?
Our investment process doesn't require us to forecast any macroeconomic variables or company financials. Instead, it is built around the forensic analysis of company cash flows, investor behaviour and market valuations.
Since the historically brutal sell-off in markets that accompanied the outbreak of Covid-19, our investment indicators have been steering us towards ‘value' style equities. In 2020, the portfolio was restructured with an emphasis on contrarian value cashflow scores after soaring investor anxiety during the pandemic had created a substantial opportunity in these stocks. As the value rally evolved, we shifted the portfolio towards value stocks with evidence of recovery and momentum.
So far in 2022, market turmoil in combination with a compression in share valuations and rising corporate aggression has presented an opportunity to add some stocks with inexpensive defensive and quality characteristics. The quality cohort is still expensive overall, meaning that we have to be very selective, but there are some good opportunities available.
Can you highlight a couple of interesting investment opportunities for the fund going forwards? How are you gaining exposure?
The Fund currently has a positive tilt to value and momentum, while the exposure to quality has recently been increased to reflect the better valuations on offer in this cohort. The Fund continues to have a negative tilt to growth; despite their recent poor share price performance, stocks with high forecast growth still trade on very expensive valuations according to our analysis.
Recent additions to the Fund include Jeronimo Martins, the food distribution specialist operating in Portugal, Poland and Colombia. It has good momentum and recovering value cash flow characteristics. Operating cash flow has been growing strongly and the stock traded on a free cash flow yield of over 10% at the time of purchase. We also added Dassault Aviation, which is a French manufacturer of military aircraft and business jets. It too has a very high free cash flow yield and offers quality characteristics on an attractive valuation. It is also showing good business momentum including a large order backlog due to strong demand in the defence segment and a recovery in business jets.
Liontrust also took home the Group of the Year Award. Read more about the group from Simon Hildrey here:
How have you driven strong performance across your fund range and how are you developing your fund range to meet the needs of investors?
The quality and performance of our fund management teams is one of Liontrust's key competitive advantages. Our investment performance has been driven by the fact that Liontrust focuses only on managing funds and portfolios in which we have particular expertise across our eight investment teams. All these teams apply distinct, rigorous and repeatable investment processes in managing funds without being distracted by other day-to-day aspects of running a fund management company. We believe these processes are key to delivering strong long-term performance and effective risk control. Staying true to their documented investment processes helps to create an in-built risk control for our fund managers and means investors know exactly how each team manages their assets.
The investment processes are enhanced by the experience of our fund management teams. Key members of the Liontrust Sustainable Investment team, for example, were among the pioneers of sustainable investing when launching their funds in 2001, being founder members of the PRI (Principles for Responsible Investment) and leading on issues that are now central to mainstream investing. The Cashflow Solution and Economic Advantage teams have an average industry experience of 25 and 21 years respectively.
How are you effectively integrating sustainable and ESG factors into your investment processes and how do you engage with and influence the companies in which you invest?
Liontrust's Sustainable Investment team has a track record of more than 21 years. In 2021, the team engaged with 148 companies and raised 282 ESG issues; about two-thirds were related to proactive initiatives and the remaining third to reactive issues. The team made 132 specific requests for change, and by March 2022 had identified that 43 (33%) of these had been either actioned or committed to by companies.
We are working with the other fund management teams to provide them with the information and support needed to allow them to incorporate ESG into their investment process or as a key risk consideration, ensuring their investment processes are enhanced and complemented by this work, and that they engage with companies to ensure best practice. In 2021, Liontrust's investment teams met with 614 companies for engagement purposes. In total, 468 ESG issues were raised. This engagement influenced, among other aspects, approaches our investee companies have taken to transition away from fossil fuels, employed greater degrees of diversity and inclusion across their businesses, and supported the Workforce Disclosure Initiative. In 2021, Liontrust voted at 97.72% (985 of 1008) of votable meetings.
How have you supported investors and contributed to the wider UK investment industry over the past year in particular?
There is strong engagement with Liontrust's communications which are designed to help clients and investors. The 18 Liontrust Bite-Size videos in the autumn of 2021 were viewed more than 97,000 times on LinkedIn. 56 posts on LinkedIn in the 4th quarter of 2021 generated total impressions of 392,000. 47 posts on Twitter in the 4th quarter of 2021 generated total impressions of 643,000 and total engagements of 5,673. In March 2022, Liontrust launched a new website to enhance information for investors. The website has distinct customer journeys showing different information and content and has personalisation which means the information and content shown reflects the interests of each visitor.
Liontrust employees have contributed to industry developments and issues over the past year including participation in:
- The Investment Association's response to the Business, Energy and Industrial Strategy (BEIS) consultation on restoring trust in Audit and Corporate Governance
- A meeting organised by the Investment Association with the FCA on CP21/24: Diversity and Inclusion on Company Boards and Executive Committees
- The Investment Association's response to the FCA's Discussion Paper (DP21/4) on Sustainability Disclosure Requirements and investment labels
- The UN PRI's Just Transition Investor Working Group
What are key development plans for the group in the future?
Liontrust has made progress in meeting a core strategic objective of being a responsible company and investor. This includes incorporating ESG into the processes of our investment teams, the expansion of engagement and voting, a commitment to the Net Zero Asset Managers' initiative, and increasing diversity and inclusion across the business. While we are pleased with the progress Liontrust is making, we have set ourselves further targets to reach over the next year and beyond. Recognising that many segments of society are under-represented in the asset management industry, Liontrust continues to strive to be more diverse and inclusive at all levels of the business.
We have developed our community engagement programme, particularly supporting numeracy in primary and secondary schools across the UK as well as animal conservation with ZSL. We will be expanding this programme including through the UK-wide levelling up agenda.
