Liontrust Macro Equity Income Fund - outlook for 2016

Heather Ferguson | Fri 19 February 2016

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After a turbulent 2015 for the UK stock market we spoke to Stephen Bailey and Jan Luthman, managers of the Liontrust Macro Equity Income Fund, to see where they expect to find investment opportunities and threats in 2016.

Opportunities

Telecoms: Companies are beginning to offer broadband, fixed-line, mobile and television services (known as quad-play) in one package. Consumers are more loyal to a business when they use more than one of their services, according to the managers. In addition, growth in data consumption should lead to increased cash flow which could be used to pay higher dividends.

UK life insurers: as healthcare innovations enable us to live longer, the UK population is becoming increasingly aged. Insurers such as Aviva and Legal & General are positioned to benefit as they offer annuity and pension products to this growing demographic.

Threats

The sectors currently offering the most attractive yields, such as mining, banks, utilities and tobacco, are to be avoided, in the managers' view, as the income paid is unsustainable.

Banks: high-street banks in particular are weigheddown by regulatory requirements and their infrastructure is often archaic. The managers therefore prefer smaller challenger banks with modern technology platforms which allow greater growth and tighter cost control.

Tobacco: emerging markets were previously key growth areas, but they are starting to follow the lead of western countries and introduce laws to restrict the industry's activities. The introduction of plain packaging limits brand value and makes it more difficult for tobacco companies to increase prices, which could restrict dividend growth.

Income payments

The Liontrust Macro Equity Income Fund began distributing quarterly income payments in December 2015. This is a change from the historic policy of paying income twice a year, although the overall level of income paid out by the fund will remain the same.

The decision to pay more frequently has been made to benefit investors who require regular income from their investments. It also reflects the increase in companies paying dividends on a quarterly basis over the past few years. There will be no change to the investment process applied by the managers.

The managers have successfully grown the income paid by the fund in 10 of the 12 years the fund has been running. £10,000 invested at launch has grown to £19,048 if the income of £7,843 was withdrawn, or £30,917 if the income was reinvested. Although, past performance is not a guide to future returns and all dividends are variable and not guaranteed.

Annual income on £10,000 invested at launch

Source: Hargreaves Lansdown, February 2016

Past performance is not a guide to future returns. Source: Lipper IM to 01/02/2016.

Performance of the Liontrust Macro Equity Income Fund since launch

Source: Lipper IM to 01/02/2016.

Our view on this fund

The fund has delivered pedestrian returns relative to the IA UK Equity Income sector since 2010, which our analysis attributes to weak stock selection.

In addition, the fund's ongoing charges are relatively high at 0.9%, compared with an average of 0.69% for UK Equity Income funds on the Wealth 150. This is in addition to the Vantage charge of up to 0.45% per annum. Where we feel a fund is exceptional, it can be worth paying a higher management charge, otherwise we prefer funds with lower fees. We believe the managers have the potential to produce good returns for investors over the long term. However, we hold other managers higher regard, while their funds also have a lower management charges. The fund therefore does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.

Please note the fund is concentrated which means each holding can have a significant impact on returns; however, this is a higher risk approach. The fund's charges can be taken from capital which can increase the yield but reduces the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.