Liontrust GF Special Situations Fund

The Liontrust GF Special Situations Fund returned 5.6%* in December. The Fund’s comparator benchmark, the FTSE All-Share, returned 4.7%.

Equity markets bounced back from the sharp fall at the end of November, despite the Omicron variant driving what the World Health Organisation described as a “tsunami” of Covid-19 cases. With initial indications that the variant is milder but far more transmissible, investors seemed confident that the economic recovery process will not be derailed. The inflationary nature of this recovery remains in focus after the UK and US reported respective inflation rates of 5.1% and 6.8% for November. As expected, this is prompting policy action, with the Bank of England raising rates for the first time in three years (from 0.1% to 0.25%) and the US Federal Reserve targeting a tapering of QE by March 2022, with three rate rises expected later this year.

With the UK market experiencing broad-based gains, the Fund’s portfolio included a number of large risers, not all of which were responding to stock-specific developments. Of those to release significant corporate updates, Domino’s Pizza Group (+28%) was the largest riser, the shares responding to a resolution to its long-running dispute with franchisees which has restricted growth in its store network. As part of the agreement, Domino’s has made a number of commitments to its franchisees, including a three-year capital investment of £20m in the digital platform and in-store experience, as well improved new store incentive terms. In return, it expects cooperation in schedule of at least 45 store openings per year. In its next financial year, Domino’s expects higher revenues to offset the increased investment costs, such that earnings expectations are unchanged. Looking further out, it expects to hit at least the upper end of its previous medium-term target of £1.6bn - £1.9bn of system sales and to exceed the target of 200 new stores.

Digital marketing specialist Next Fifteen Communications (+20%) made headway after issuing its fourth guidance upgrade of 2021. A Q3 trading update revealed 38% year-on-year growth in the period to 31 October, two-thirds of which was organic. With this strong performance carrying over into the fourth quarter, the company expects results to be ahead of market expectations.

Forex risk management group Alpha FX (+13%) announced that revenue and earnings for 2021 are now on track to be ahead of market expectations, despite a planned acceleration in investment costs during the second half.

On the downside, promotional product specialist Pebble Group (-12%) fell after releasing a trading update. The company stated that it expects 2021 financial results to be “at least in line with market expectations”. Although an apparent marginal upgrade to guidance, this is the same wording used within its half-year results in September, so it’s likely that many investors had actually expected a firmer commitment to a higher outcome at this point.

Two of the Fund’s asset manager holdings slipped after releasing solid full-year results. Both AJ Bell (-2.2%) and Integrafin Holdings (-1.7%) have indicated increased investment levels in their investment platforms – moves which will constrain short-term profits but should lead to greater growth in the medium term. AJ Bell added more than 87,000 customers to its platform in the year to 30 September, taking its total to over 382,000. It recorded 15% revenue growth to £146m and 13% profit before tax growth to £55m. It also announced a special dividend of 5p per share, a sign of its confidence in its growth and balance sheet position. Integrafin Holdings also reported growth in the year to 30 September: funds under direction on its Transact platform rose 27% to £52bn after gross inflows to its investment platform of £7.7bn, and profit before tax grew by 14% to £63m.

Positive contributors included:

Domino’s Pizza Group (+28%), Big Technologies (+21%), Diageo (+20%), Next Fifteen Communications (+20%) and TI Fluid Systems (+16%).

Negative contributors included:

Pebble Group (-12%), John Wood Group (-5.2%), Gamma Communications (-2.9%), AJ Bell (-2.2%) and Integrafin Holdings (-1.7%).

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

*Source: Financial Express, as at 31.12.2021, total return (net of fees and income reinvested), sterling terms, C3 institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 31.12.2021, total return (net of fees and income reinvested), primary class.

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 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.

DISCLAIMER

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.