Liontrust UK Growth Fund

The Liontrust UK Growth Fund returned 1.2%* in January. The FTSE All-Share Index comparator benchmark returned -0.8% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -0.9%.

The vaccine roll-out continued apace in the UK, and there was some evidence emerging by the end of the month that cases of the virus had peaked. Given the threat from different variants of the virus, Prime Minister Johnson refrained from setting out a set timetable for the reopening of the economy but the speed of the vaccination programme gave investors reasons to be optimistic.

Pharmaceutical company Indivior (+26%) was the Fund’s largest gainer after agreeing a settlement with former parent Reckitt Benckiser. In November, Reckitt submitted a US$1.4bn court complaint against Indivior related to an indemnity contained in the 2014 demerger agreement. This claim was withdrawn in January and Indivor agreed to pay a total of US$50m over five years. Separately, Indivior released a full-year update in which it said pre-tax profit is expected to be ahead of expectations. 

Next Fifteen Communications Group (+18%) saw its shares rise after stating that the final quarter of its financial year ending 31 January 2021 was ahead of management’s expectations. The digital marketing specialist expects revenue to increase 9% and noted “strong growth” in profit margins, led by robust performances from its B2B technology focused agencies such as Activate, Twogether and Agent3. It added that it feels cautiously optimistic about trading in the next financial year as it capitalises on opportunities arising from the transition to an increasingly digital-driven economy.

Education publisher Pearson (+19%) is one of the Fund’s holdings which has seen trading disrupted by the pandemic, as schools and universities closed. In a trading update for 2020, the company said sales declined 10% and adjusted operating profit is expected to be between £310m and £315m, compared to 2019’s £581m. It noted that the effect of Covid-19 was felt most acutely in its International and Global Assessments division due to exam cancellation, but this was partly offset by a strong performance in Global Online Learning, which grew sales by 18%.

John Wood Group (-5.5%) also commented on a challenging 2020, which was dominated by the Covid-19 pandemic and low oil prices. It expects adjusted revenue to fall 20%, while adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) will be down 22%. More positively, there were signs of stabilization in some of Wood Group’s end markets, but the company maintained that there remains significant uncertainty due to the Covid-19 backdrop.

We made two new additions to the portfolio in January: Clipper Logistics and Gamma Communications. Both companies are held in other Economic Advantage funds and are businesses we know well. Clipper Logistics is a product distribution, returns management and logistics company, which has a particular expertise in providing services to online retailers. Its business model provides it with a high level of recurring revenue.

Gamma Communications is a business telecommunications provider. We believe that the company possesses all three of the core intangible strengths which the Economic Advantage process seeks out: intellectual property, distribution network strength and high recurring income. Over many years, Gamma has developed market-leading proprietary technology solutions in the area of cloud communications, such as SIP Trunk lines and hosted PBX systems, where it enjoys high market shares. The company goes to market predominantly via a network of channel partners built up over a long period of time, while the majority revenue is earned on recurring monthly contracts. Having already built up a leading market position in the UK, Gamma has expanded in recent years into mainland Europe, where it sees considerable further potential for growth.   

Positive contributors included:

Indivior (+26%), Pearson (+19%), Next Fifteen Communications (+18%), Brooks Macdonald Group (+13%) and Hargreaves Lansdown (+12%)

Negative contributors included:

Petrofac (-14%), Coats Group (-8.6%), Rightmove (-7.9%), Smiths Group (-5.7%) and John Wood Group (-5.5%).

Discrete years' performance** (%), to previous quarter-end:

*Source: Financial Express, as at 31.01.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 31.12.20, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

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. Some of the Funds managed by the Economic Advantage team invest primarily in smaller companies and companies traded on the Alternative Investment Market.  These stocks may be less liquid and the price swings greater than those in, for example, larger companies. The performance of the GF UK Growth Fund may differ from the performance of the UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

DISCLAIMER

The information and opinions provided 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. 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.