Liontrust UK Growth Fund February 2022 review | Insights

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 Liontrust UK Growth Fund returned -1.3%* in February. The FTSE All-Share Index comparator benchmark returned -0.5% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -2.9%.

Developments in Ukraine ensured that top-down considerations were once again the largest factor in driving stockmarket returns, as investors’ focus shifted from macroeconomic to geopolitical analysis.

From the perspective of the Economic Advantage Funds, this meant a continuation of some of the headwinds from last month. ‘Value’ continued to outperform and ‘quality’ to underperform, though to a lesser degree than in January, while larger companies outperformed smaller ones, perhaps reflecting a degree of risk-aversion returning to markets in the light of the geopolitical situation

Some of the largest portfolio detractors were again driven by investor sentiment rather than company newsflow. Among those that did issue investor updates, Synthomer (-21%) was the heaviest faller after it was hit by a faster-than-expected fall in demand for Covid-19 related products. The company is a supplier of aqueous polymers for applications such as coatings, construction, textiles, paper and synthetic latex gloves. Its nitrile lattice product (NBR) used in medical gloves has been in high demand during the pandemic, driving a doubling of 2021 EBITDA (earnings before interest, tax and depreciation). However, NBR margins have now fallen from their exceptional 2021 levels – an earlier normalisation than expected – while high inventory levels of medical gloves and an easing of the pandemic has translated to reduced demand.

By contrast, shares in Bunzl (+7.3%) rose at the end of the month as 2021 results showed a strong recovery in its base business which compensated for the anticipated drop-off in Covid-19 related orders. The distributor of items such as packaging, labels, cleaning & hygiene products reported underlying revenue growth of 3.6%, the result of a 6.3% fall in Covid-19 related orders and a 9.9% increase in the base business. The recovery in the base business was driven by both product cost inflation and increased volumes across all business areas.

John Wood Group (-19%) suffered a heavy fall. It announced that the preparation of its 2021 results had led it to downgrade the value of Aegis Poland, a legacy Amec Foster Wheeler contract. It will now take an exceptional charge of $100m relating to the project, reflecting a reduced assessment of expected payments from the customer net of legal costs necessary to recover them.

Precision measurement specialist Spectris (-17%) also fell as investors showed some apprehension over a potential £1.8bn acquisition of Oxford Instruments. Spectris announced that it was in discussions regarding a £31 per share offer comprising £19.50 cash and £11.50 in new Spectris shares. Oxford Instruments had indicated that it would recommend a bid at this level, although a formal offer had yet to be made. However, talks were subsequently terminated in early March due to the market volatility created by the geopolitical turmoil.

The slide in Hargreaves Lansdown (-15%) shares reflects half-year results that disappointed relative to expectations, as well as investor nervousness over the announcement of a large investment in growing its digital platform. Although total assets under administration rose 4% to more than £141bn over the period, net new business of £2.3bn was less than half the level of the prior six months. Revenues dropped 3% year-on-year and underlying profit before tax fell 13%, trends which the company attributes to a normalisation of activity levels following an uplift during the earlier stages of the pandemic. To drive the next wave of growth, Hargreaves announced a five-year investment of £175m in its digital and data capabilities, in the expectation of pushing net new business growth towards 10% and improving client retention. For the first two years of the investment period, the company’s special dividend will be suspended.

The portfolio’s largest riser was Clipper Logistics (+32%), as it announced its intention to recommend a possible takeover offer from GXO comprising 690p cash and GXO shares worth around 230p for every Clipper share. XPO is a New York-listed contract logistics provider with 2021 revenues of $7.9bn. Shares in Clipper jumped 32% to trade close to the implied offer.

Indivior (+25%) was another significant riser. Growth in its Sublocade treatment and limited market share loss for its legacy opioid-addiction treatment Suboxone allowed to upgrade 2021 forecasts late last year. In February, it released full-year 2021 results, and those same trends allowed it to issue better-than-expected guidance for 2022. It forecasts net revenue of $840m to $900m, a 10% increase over 2021 at the midpoint of the range. This assumes growth of more than 50% in sales of Sublocade and a maintenance of 20% market share for Suboxone despite generic competition.

Elsewhere within the portfolio’s largest contributors in February, both BAE Systems (+25%) and Ultra Electronics (+11%) rose strongly on the expectation of an era of increased defence spending due to events in Ukraine.

Positive contributors included:

Clipper Logistics (+32%), Indivior (+25%), BAE Systems (+25%), Ultra Electronics (+11%) and Bunzl (+7.3%).

Negative contributors included:

Synthomer (-21%), John Wood Group (-19%), Spectris (-17%), Hargreaves Lansdown (-15%) and TP ICAP (-15%).

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

Past performance does not predict future returns

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust UK Growth I Inc	21.0%	-8.3%	19.9%	-6.1%	14.2%
FTSE All Share	18.3%	-9.8%	19.2%	-9.5%	13.1%
IA UK All Companies	17.2%	-6.0%	22.2%	-11.2%	14.0%
Quartile	1	3	3	1	2

*Source: Financial Express, as at 28.02.22, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.12.21, total return (net of fees and income reinvested), bid-to-bid, primary class.

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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.