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Liontrust UK Ethical Fund

Q3 2021 review
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Fund returned 2.1% over the quarter, underperforming the IA UK All Companies sector average of 2.7% and the MSCI UK Index’s 2.2% (both of which are comparator benchmarks)*.

Equity markets grew more volatile throughout the third quarter, with the Federal Reserve
discussing a start to tapering in November, supply chain blockages, spiralling raw material prices, a new standoff over the US debt ceiling and concern around contagion from the collapse of debt-plagued Chinese property giant Evergrande. With a weak pound and strong oil price, the UK was one of the stronger performers against this backdrop.

We have never been keen to focus on short-term performance and Q3 highlights exactly why. Given our quality growth focus, the portfolio underperformed earlier this year with expectations of imminent rate hikes to control inflation resulting in a value rotation into more cyclically sensitive and optically cheaper companies. This reversed in July/August as the Fed indicated it would let the economy run hot without raising rates until late 2022 or 2023, refocusing markets on reliable growth and causing a fast move back into our favoured names.

More hawkish central banks in September drove another turnaround and a selloff in technology, however, and all this has been without any underlying change in the prospects for our selected companies. The market remains volatile and often disconnected from fundamentals in the short term, and we focus on long-term positive shifts in our economy and high-quality businesses driving, and benefitting from, these changes.

Top holdings over Q3 including Learning Technologies Group, held under our Providing education theme, with a collection of e-learning, compliance, training and Human Resources software and content brands. The company continues to consolidate the e-learning space with a number of acquisitions designed to access new technologies, geographies and cross sell to new customers. Over the quarter, the company reported a swift return to organic revenue growth in the first half and another in a line of acquisitions, GP Strategies for $394 million, creating a global workforce transformation business focused on learning and talent management.

Digital security business Avast also had a good quarter, boosted by the announcement of a potential merger in July, but we are now exiting the position after it was subsequently sold to US rival Norton LifeLock in a deal worth up to £6.2 billion. We added the stock under our Enhancing digital security theme in the third quarter of last year, expecting it to benefit from a tailwind of more people working from home, and this merger reflects the strength of its market-leading products.

Helios Towers was also back among our top contributors, with this telecom infrastructure company held under our Connecting people theme. Helios operates in countries, largely in sub-Saharan Africa, where mobile penetration is low and demand for telecom services increasing as younger populations demand mobile internet access to connect to digital services. As an independent tower company, mobile operators benefit from sharing Helios’ towers, consolidating power requirements and maintenance journeys.

Over the first half, the company closed the acquisition of Free Senegal's tower assets and announced five acquisitions across Africa and the Middle-East, announcing a 4% increase in revenues. The deals increase the group’s site count close to 15,000 towers across 11 markets, delivering early on the 2025 vision of expanding to 12,000+ towers in at least eight markets.

Recent addition Genuit Group was another strong name, delivering revenue and profit growth in a recovering first half, despite cost headwinds. We bought the stock under our Building better cities theme, with the company changing its name from Polypipe Group in April. This is a leading provider of sustainable construction products, focusing on water, climate and ventilation management solutions,

Elsewhere, Trainline also had a solid Q3 after a volatile period, with shares rising on the back of September results showing a recovery in the first half of the year as rail passengers return and increasingly shift to online and digital tickets. Group net ticket sales in Q2 recovered to 71% of same period in 2020, their highest level since the start of the pandemic, and the company highlighted growth across its top four international markets, France, Italy, Germany and Spain. CEO Jody Ford said he is positive about long-term tailwinds for the industry, including the significant planned investment in rail capacity, particularly on high speed routes, and a growing awareness of the environmental benefits of travelling by train versus less sustainable modes of transport.

In terms of weaker performers, Intertek also had a slower Q3 despite delivering first-half results in line with expectations, with group revenues up 5.8%, and predicting an acceleration in the global Quality Assurance market post-Covid as companies have realised the need to reduce risk in supply chains. In May, the company agreed to acquire SAI Global Assurance, also adding JLA in July to enter the fast-growing food testing industry in Brazil. We see this business a global leader in the testing and inspection space and a strong fit for our Better monitoring of supply chains and quality controls theme. Through its technology, it ensures that products are tested, checked and certified to meet regulatory standards.

Hargreaves Lansdown was also among the detractors, with its shares falling after announcing lower profits for the year to end June, 3% down on the previous period. More positively, the company revealed assets under administration up 30% to more than £135 billion and a record number of new users, 233,000, bringing the total to more than 1.6 million.

Hargreaves warned recent growth in users may fall off as lockdowns ease but feels the younger mix of clients that remain, with 83% of new users below the age of 55, will drive future growth. This supports our long-term view of HL as a stock for our Saving for the future theme, with a huge rise in pension provision required to prevent a future shortfall in retirement funding.

Natural extracts and ingredients company Treatt also had a weaker quarter but should benefit as hospitality venues continue to reopen around the world. We identified Treatt as part of our research into our Delivering healthier foods theme five years ago and found a company of highly motivated and aligned people, focusing on a strategy of increasing their value-add to customers (many of whom are decades-long partners).

Treatt’s positioning towards authentic flavour, taste and fragrance with natural ingredient and sugar reduction technology has proven astute. Our research highlights continued strong demand from consumers wanting to eat healthier and more natural food and beverages, particularly in the wake of the pandemic when many are thinking more about health and wellbeing. Treatt continues to invest in its people and capabilities as well as deepening relationships with its customers and we remain excited about the long-term compounding prospects.

In terms of recent activity, Rotork was a new addition over the quarter, also under our Better monitoring of supply chains and quality control theme, as a play on safety and reducing methane emissions from gas and oil extraction, transportation  and processing. The company’s aim is to keep the world flowing for future generations, helping to drive the transition to a cleaner future where environmental resources are used responsibly. Rotork announced a return to underlying growth in the first half of 2021, with margins improving despite significantly higher logistics and commodity costs, and also reinstated its half-year interim dividend.

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








Liontrust UK Ethical 2 Acc












IA UK All Companies












Source: Financial Express, as at 30.09.21, primary share class, total return, net of fees and income reinvested.

Understand common financial words and terms See our glossary
Key Risks 
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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.
Some of the Funds managed by the Sustainable Future team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. Investment in Funds managed by the Sustainable Future team 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. Some Funds may invest in derivatives. The use of derivatives may create leverage or gearing. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
This 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. The investment being promoted is for units in a fund, not directly in the underlying assets. 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 Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
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