Luthman and Bailey tell Dan Jones how political risk affects investment strategy and why their macro-thematic style is more than a short-term idea.
Continued from previous page...
What have been the biggest drivers of performance this year?
Performance has in part reflected themes put in place in 2012 that have come good this year. Those include our zero weighting in utilities.
Liontrust duo return to pharmas
Over the course of the fund’s existence, we would say performance has been driven by the macro process. It is a very difficult to add value at a stock level because of regulatory restrictions.
Regulatory requirements in terms of the release of information have created an almost symmetrical environment. At a macro level, however, there are all kinds of asymmetry.
That can be differences of understanding or interpretation, particularly as themes do not have to engage with the public face of a business, for example.
You have a large weighting in Aberdeen as part of your asset manager exposure. What are your thoughts on a potential takeover of SWIP?
We think an acquisition of SWIP would be a positive. [Aberdeen CEO] Martin Gilbert has the potential to dilute the importance of emerging markets for his business. We hope any deal will be funded in cash rather than in shares, but we have to wait and see.
We still expect Aberdeen’s payout ratio to move from 40% to over 60% in future. It is a good example of a stock in a sector where you are investing in the business model.
Asset managers as a theme came together for us last summer – we were seeing the beginning of a global recovery, and thought that would favour equities.
It is not a great rotation, more of a rebirth of an equity culture. What we have seen, highlighted by things like the Royal Mail flotation, is that equities are becoming the asset class of choice almost by default. That naturally favours asset managers.
You have previously held notable off-benchmark positions in overseas equities. Has this weighting come down as the UK economy recovers?
We currently have 15% in US large caps, which includes pharmaceuticals like Pfizer and telecoms. Our exposure got up to 20% at the start of this year, but the acquisition of Heinz [by Warren Buffett’s Berkshire Hathaway] was the catalyst for us to gradually reduce our exposure.
We went on to sell Pepsico and global brands business Kimberly-Clark, whose ratings had been driven to unsustainable levels.
We want to be holding both value and growth stocks, but what we considered value stocks were being valued as growth stocks.
What is your outlook for the fund in the year ahead?
Our macro process should not be confused with one which follows short-term trends or fashions. We look at things in the long term, and our themes can take time to play out, as has been seen with things like utilities, pharmaceuticals and our decision to cut our tobacco holdings last year.
But the fund has performed well this year; we increased our dividend by 22% in July and it is targeted to be 3.95% as of next January. We are looking to be around the 4% level on an annual basis.
CV: Jan Luthman
April 2012
Joined Liontrust when it acquired Walker Crips Asset Management.
October 2003
Began running the Macro Equity Income fund.
2000
Joined Walker Crips.
1988
Began his investment career
CV: Stephen Bailey
April 2012
Joined Liontrust when it acquired Walker Crips Asset Management.
October 2003
Began running the Macro Equity Income fund.
1987
Joined Walker Crips Asset Management.
1985
Began investment career
