Market update by Liontrust – Q2 2019

Liontrust GF High Yield Bond Fund is manufactured by Liontrust Fund Partners LLP and represented in Malta by MeDirect
Bank (Malta) plc.

Quarter 2, 2019 – market review

The global high yield market had a mixed but ultimately decent second quarter, producing a return of 1.98% (EUR). April carried on
the strong returns seen in the early part of the year, only to see risk sentiment dip in May (mainly on weaker economic data and trade
war concerns) and the market produce its first monthly negative return of the year.

However, the market came back in anger in June, aided in no small
part by ‘dovish’ central bank rhetoric. You will remember the early 2019 rally was also sparked by central bank action: as one might
expect at this late stage of what has been the longest US economic expansion in the last 150 years, the market is clearly hyper-sensitive
to the actions of the Federal Reserve Chairman, European Central Bank (ECB) President and their colleagues.

European high yield had a stronger quarter than its US counterpart,
generating a return in USD of 3.2% versus 2.6%. The outperformance
of higher quality has been an ongoing theme in high yield, with the
trend only strengthening in Q2.

Given the central bank-driven rally we have seen, this is not surprising.
BB bonds, the highest-rated part of the market with typically lower
coupons and longer to maturity, tend to have higher duration or
interest rate sensitivity and therefore perform very well in a market
where ‘risk assets’ are stable/rallying at the same time as ‘risk-free’
rates are rallying.

Market outlook

Our preferred measure of credit spread value is to use a sub-index that
excludes the lowest-quality credit and energy, based on our quality
bias and preference to avoid thematic sectors. Using this measure,
the market is a little expensive but not outrageous (the current spread
is 3.2%, whereas we are enthusiastic about value at 4%).

In this environment of central bank generosity, we could certainly see
the high yield market rally further. Indeed, lower-quality parts of the
market could ‘catch-up’ if investors decide to try and squeeze out the
last of the juice.

That being said, our process is designed to encourage us to add
market risk when we see good value and reduce it when we see
the opposite. For example, at the start of the year, the Fund had
‘spread duration’, or sensitivity to general credit spread movement,
above 4. By the end of June, having actively reduced longer-maturity
bonds, we had reduced spread duration to around 2.1. Moreover,
throughout its life, the Fund’s exposure to CCC and lower has been
less than 5%, and today is a mere 1.3%.

The cycle is long in the tooth, which in and of itself is not a reason for
it to end any time soon. We still believe the likes of the US, Germany
and UK economies are in reasonable health and companies are,
generally speaking, strong enough for defaults to remain relatively
low. That being said, experience tells us this is not the time to be
reaching for yield and therefore risk. We will not abandon our
quality bias or our desire to minimise thematic risks, be they cyclical
(commodities, banks) or structural (disruption, such as the risk faced
by traditional retailers and autos, for example).

In summary, with around 5.5% cash, the Fund is reasonably well
invested. We have reduced spread duration and, with around 13%
of portfolio value in liquid derivatives to protect from rising interest
rates, the Fund, we believe, can be considered to offer a relatively
low duration, high-quality exposure compared to the broad high
yield market.

Liontrust Global High Yield Fund

The Fund (A1 accumulation class) returned 2.2% in euro terms in
Q2 2019 against 2.0% from the ICE Bank of America Merrill
Lynch Global High Yield Index (EUR hedged)*†.

With our bias towards higher-quality high yield credit, this was
undeniably a good environment for the Fund. We saw positive
performance from most of the holdings and a very small number of
only modestly negative contributors.

Top contributors included Netflix, UK gas producer Neptune,
Canadian ply-board manufacturer Norbord, UK biomass energy
producer Drax and US casino giant MGM.

We have an overarching view that interest rates are too low in the
face of stable, near-target inflation and slowing yet reasonable growth
in developed market economies. Our view is particularly strong in
terms of European rates and we therefore have a substantial German
interest rate hedge in the Fund, combined with a much smaller US
rate hedge. As rates have rallied strongly, these have been a drag on
the performance of the Fund.

At the end of June, the net underlying yield on the Fund was
3.74% (for classes A1, B1 and C1).


Liontrust Key risks & Disclaimers:

Past performance is not a guide to future performance. Do remember that the value of an investment and the income
generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally
invested and potentially risk total loss of capital. The issue of units/shares in Liontrust Funds may be subject to an initial
charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should
always be considered as long term.

Investment in the GF High Yield Bond Fund involves foreign currencies and may be subject to fluctuations in value due to
movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has
its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest.
Bond markets may be subject to reduced liquidity. The Fund may invest in emerging markets/soft currencies and in financial
derivative instruments, both of which may have the effect of increasing volatility.

Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial
Conduct Authority (FRN 518165) to undertake regulated investment business.

This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or
sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples
of stocks are provided for general information only to demonstrate our investment philosophy. It contains information and
analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care
has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by
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consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult
suitability with a regulated financial adviser before investing.

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solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

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implementing strategies discussed herein.

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investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of
future performance or a reliable guide to future performance. Any decision to invest should always be based upon the details
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