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  • 1. Macro Equity Income Fund Forecast Yield 2013-2014: 4.16% Jan VH Luthman and Stephen Bailey Professional Investors and Advisers only
  • 2. Why we seek to interpret macro themes: Powerful and unprecedented More scope for outperformance than stock-specific analysis – Stock-specific: very few ‘asymmetries of information’ - investment decisions may be made only on the basis of information already in the public domain. Little scope to outperform – Macro-themes: considerable asymmetries of awareness and interpretation, ample scope to outperform Themes by their nature are inherently less volatile than stock-specific analysis 2
  • 3. Some of the larger themes: QE/sterling Global readjustment of currencies and wages Asset managers Global health Prudence & the rise of challenger banks 3
  • 4. 1. Quantitative Easing/Sterling 4
  • 5. Sterling vs EM currencies 6.1 Sterling vs Malaysian ringgit 5.9 5.7 5.5 5.3 5.1 4.9 4.7 4.5 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 GBP vs MYR Source: Bloomberg, Liontrust Investment Partners LLP. Data from 01.01.2009 to 30.08.2013. 5
  • 6. Sterling vs EM currencies 2,300 Sterling vs South Korean won 2,100 1,900 1,700 1,500 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 GBP vs KRW Source: Bloomberg, Liontrust Investment Partners LLP. Data from 01.01.2009 to 30.08.2013. 6
  • 7. Sterling vs EM currencies 2.5 Sterling vs Singapore dollar 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 GBP vs SGD Source: Bloomberg, Liontrust Investment Partners LLP. Data from 01.01.2009 to 30.08.2013. 7
  • 8. Quantitative easing Sterling vs US dollar 1.75 1.70 1.65 1.60 1.55 1.50 1.45 1.40 1.35 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 USD vs GBP Source: Bloomberg, Liontrust Investment Partners LLP. Data from 01.01.2009 to 30.08.2013. 8
  • 9. 2. Global Readjustment of Currencies and Wages This theme has matured 9
  • 10. Global Readjustment of Currencies and Wages We live in a globalising, competitive world Over the long term, unit costs of production will trend towards approximate, riskadjusted parity This trend will follow different paths in different parts of the world 10
  • 11. Global Readjustment of Currencies and Wages High-cost economies – Prefer lower currencies, not wages Low-cost economies – Prefer higher wages, not currency appreciation 11
  • 12. Global Readjustment of Currencies and Wages Theme has matured Principal driver – rapid rise in Chinese minimum wages – is fading Margins eroding as more competitors move in to Chinese market Equity valuations driven to over-optimistic levels Entire US-listed exposure sold 12
  • 13. 3. Asset Managers Theme summary & update 13
  • 14. Asset Managers - much as expected More positive perceptions of economic outlook Improving corporate earnings Rising equity valuations Investor confidence returning Rising bond yields Declining bond prices Switch from bonds to higher-fee equities Rising inflows, rising fees & fee rates 14
  • 15. Asset Managers - much as expected Strong cash flows Boosting balance sheet strength Improving dividend outlook Possible special dividends/buybacks Preferred to Banks for exposure to recovery Less political risk Clarity of financial statements 15
  • 16. Banks & Financials relative to the FTSE All-Share 1.35 1.30 1.25 1.20 1.15 1.10 1.05 1.00 0.95 0.90 0.85 Dec 12 Jan 13 Feb 13 Banks Mar 13 FTSE All-Share index Source: Bloomberg, Liontrust Investment Partners LLP. Data from 31.12.2012 – 17.07.2013 Apr 13 May 13 Jun 13 Specialist financials 16
  • 17. 4. Global Health Theme summary & update 17
  • 18. Pharmaceuticals – tobacco analogy Tobacco 2004 Pharmaceuticals 2012-13 – Mature markets – Mature markets – Low growth – Low growth – No pricing power – No pricing power – Political interference – Political interference – Litigation risk – Litigation risk 18
  • 19. Pharmaceuticals – tobacco analogy Tobacco re-orientated to new geographic markets Pharmaceuticals re-orientating to new geographic markets and Reducing risk and improving productivity of R&D Transformation of investor rating of pharmaceuticals could be even more powerful than that of tobacco 19
  • 20. Pharmaceuticals 1.40 Re-rating of pharmaceuticals is underway in the US 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 Jul 09 Nov 09 Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12 Mar 13 Jul 13 FTSE-All Share index relative to the S&P 500 Pharmaceuticals, Biotchnology & Lifesciences index Source: Bloomberg, Liontrust Investment Partners LLP. Data from 17.07.2009 to 17.07.2013. 20
  • 21. Pharmaceuticals But has barely begun in the UK 600% 500% 400% 300% 200% 100% 0% FTSE 350 Index Tobacco TR in GB Source: Financial Express, Liontrust Investment Partners LLP as at 30.08.2013. FTSE 350 Index Pharmaceuticals & Biotechnology TR in GB Jun-13 Jul-12 Aug-11 Sep-10 Oct-09 Nov-08 Dec-07 Jan-07 Feb-06 Mar-05 Apr-04 May-03 Jun-02 Jul-01 Aug-00 Sep-99 Oct-98 Nov-97 Dec-96 Jan-96 Feb-95 Mar-94 Apr-93 May-92 -100% FTSE All Share TR in GB 21
  • 22. Pharmaceuticals Driven initially by yield-hungry investors Sector has risen strongly FH 2013 Shift from fixed interest — yield premium — high quality earnings — strong balance sheets Growth prospects not yet priced in 22
  • 23. 5. Prudence & The Rise of Challenger Banks 23
  • 24. Prudence and the Rise of Challenger Banks UK cannot afford another bank bailout Regulatory system must prevent the possibility Prudence is non-negotiable Banks will not be allowed to expand lending via lower capital adequacy Instead, the Government will encourage new ‘challenger’ banks 24
  • 25. Prudence and the Rise of Challenger Banks Prudently funded Politically favoured Government preference for low-risk 'community' banks No bail-out baggage Rights Issue to repair balance sheets unlikely Expanding lending; can access FFL scheme at lowest rate of 25bps pa. Possible significant advantage in re-mortgage market 25
  • 26. Prudence and the Rise of Challenger Banks Mortgage Guarantee Scheme – Government determined to expand ‘challenger’ banking sector – Mortgage Guarantee Scheme could be an enabler – Not just FTBs & Home Movers – May also apply to re-mortgages – Re-mortgaging must be with new lender 26
  • 27. Prudence and the Rise of Challenger Banks Mortgage Guarantee Scheme – May enable challengers to poach incumbents’ mortgage loans – Applies to new loans, not existing loans – Applies to repayment mortgages – not interest-only – Challengers poach (safer) repayment mortgage loans – Incumbents left with growing proportion of (riskier) interest-only loans 27
  • 28. Prudence and the Rise of Challenger Banks Mortgage Guarantee Scheme – who may benefit: – Challenger banks – Mortgage comparison websites – Some retailers, as lower mortgage rates boost disposable income – Prudent borrowers (repayment only; low multiples) – Some house builders 28
  • 29. Theme exposure Moneysupermarket.com: conduit to challenger banks Close Brothers: private bank Paragon: buy-to-let mortgage provider, applying for a banking licence J. Sainsbury: increasing consumer spending; full ownership of Sainsbury’s Bank Telford Homes: London-based developer with apartments in areas of urban regeneration. 29
  • 30. Liontrust Macro Equity Income Target yield 2013/2014 Historic yield* 180% 4.16% 3.16% 166.5% Liontrust Macro Equity Income Fund 160% 140% 126.4% FTSE All-Share index 120% 119.2% IMA UK Equity Income sector 100% 80% 60% 40% 20% 0% Apr-13 Oct-12 Apr-12 Oct-11 Apr-11 Oct-10 Apr-10 Oct-09 Apr-09 Oct-08 Apr-08 Oct-07 Apr-07 Oct-06 Apr-06 Oct-05 Apr-05 Oct-04 Apr-04 Oct-03 -20% Past performance is not a guide to future performance. Investment in the Fund carries the risk of potential total loss of capital. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. A portion of the Fund’s expenses are charged to capital. This has the effect of increasing the distribution and constraining the Fund’s capital performance. Source: Financial Express accumulation units , data as at 31.08.2013, total return, bid-to-bid retail class. Launch date 31.10.2003. *Income Units 30
  • 31. Strictly private and confidential information Liontrust Macro Equity Income Fund Important notice: This presentation is the property of Liontrust Fund Partners LLP (“LFP”) authorised and regulated by the Financial Conduct Authority, and is strictly confidential. It contains information intended only for the person to whom it is addressed or presented, and is intended for evaluation purposes only, with no licence to use the content or materials within. In receiving this presentation, the recipient acknowledges and agrees that: i) in the event the recipient does not wish to pursue this matter, this presentation will be returned as soon as possible; ii) the recipient will not copy, fax, reproduce, divulge or distribute this confidential presentation, in whole or in part, without the express written consent of LFP; iii) all of the information herein will be treated as confidential material with no less care than that afforded to the addressee’s own confidential material of the most sensitive nature; iv) information herein may constitute material non-public information, disclosure of which may be prohibited by law, and the legal responsibility for its use is borne solely by the recipient. This presentation in no way constitutes an offer to sell, nor a solicitation to purchase securities in any company or investment product. The value of units in a unit trust and the income generated from them can fall as well as rise and are not guaranteed; investors may not get back the amount originally subscribed. Past performance is not a guide to future performance. The issue of units may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Equity investment should always be considered as long term. A portion of the Fund’s expenses are charged to capital. This has the effect of increasing the distribution and constraining the Fund’s capital performance. Investment in the Fund carries the risk of potential total loss of capital. Investment in the Fund involves a foreign currency and may be subject to fluctuations in value due to movements in exchange rates. The Prospectus or Key Investor Information Documents (KIIDs) for Liontrust’s unit trusts are available direct from Liontrust or from our website, www.liontrust.co.uk. 31