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Liontrust SF Managed Growth Fund

Q3 2023 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 -4.7% over the quarter, outperforming the IA Flexible Investment sector average of -0.1% (which is the comparator benchmark)*.

While capital markets have provided volatility for sustainable investors over the last two years, we believe the foundations of the key underlying sustainable themes we invest in remain very strong. The 20 sustainable investment themes that we have identified – which each in some way contribute to a cleaner, healthier and safer future – are in our view the strongest and most dependable long-term growth trends in the economy.

Our job is to think differently to the crowd by considering the longer term and focusing on understanding our companies. We aim to understand their prospects for future cashflow growth and how the market has mis-appreciated their potential over the long term. We want to harness the exponential effect of companies that can grow at a strong rate both now and 10 years from now as they innovate and solve sustainability issues.

Looking to the future, we see no reason why the powerful sustainable trends in which we have invested should not persist, and so look forward with great confidence.

With regard to the drivers of performance,
Alphabet reported second quarter revenue that exceeded analysts’ expectations, boosted by the company’s leadership position in AI, the continued performance of its Search division, which was aided by an increase in advertising, as well as strength in its Cloud division and strong revenue growth in its YouTube segment.

Exposed to our Providing education theme, Alphabet's largest business is the core Google search business. By indexing the world's information and providing it online for free to the majority of users, we believe Google provides clear benefits to society.

First quarter addition Morningstar was among the notable contributors for the quarter, performing strongly following the release of Q2 results. The quantitative and qualitative research company reported a revenue increase of 7.3% to $504.7 million commenting that there was solid growth in its license-based product areas.

Held under our Saving for the future theme, Morningstar provides both quantitative and qualitative research to the investment industry, with databases and analytical tools covering private markets, ESG, credit ratings, equity valuation, and more. On the client side, it provides software and investment management services to financial advisors and institutions.

The business is constantly trying to create new products or services that leverage existing expertise and thus create scale. For example, the investment management and model portfolio services it provides leverages the extensive equity, credit, ESG, and even private market research that it already has underneath its roof.

Accounting software provider Intuit was another notable performer after unveiling a solid set of Q4 results, showing 12% revenue growth to $2.7bn, driven by a 21% expansion in its Small Business and Self-Employed division (to $2.1bn). Its 2024 guidance forecasts a similar revenue growth rate of 11% to 12%, again fuelled by the Small Business and Self-Employed unit.

Held under our Increasing financial resilience theme, Intuit provides accounting software to individuals, small businesses and the self-employed, helping them manage their money, reduce their debt and file taxes. Financial resilience is crucial to a stable economy. You only have to go back to September 2008 to see the impact that weak financial institutions, inadequate regulation and supervision, and a lack of transparency had on the global economy. Small and Medium sized businesses drive sustainable economic growth through innovation and creating jobs. We believe companies like Intuit that empower SMEs and individuals to operate more effectively are contributing to a more resilient financial system.

Turning to the detractors, shares in Masimo, the maker of pulse oximeters and other patient monitoring equipment, fell sharply after announcing preliminary second quarter results that were below average estimates following weaker performance in its healthcare segment, driven by delays in large orders from hospitals.

Exposed to our Providing affordable healthcare theme, Masimo core product is pulse oximetry sensors. These enable patient’s vital signs to be monitored. These in turn are connected to either a fixed or remote monitoring machine or device to communicate and display those signs to medical professionals.

Illumina was also a detractor. The company continues its slide after a tough few months, after pressure from activist investor Carl Icahn prompted CEO Francis DeSouza’s to step down. Held under our Enabling innovation in healthcare theme, Illumina provides technologies that enable our understanding of the genome. This has great implications for our understanding and treatment of disease, as well as much wider applications such as agriculture.

Signs of slowing growth in Adyen’s interim results led to a sharp de-rating of the shares. Net revenues of €739m, while up 23% year-on-year, fell well short of consensus expectations of €777m. Adyen’s management commented that the moderation in growth had come about as a result of high inflation and interest rates and the knock-on impact this had on US digital clients, who shifted focus from growth to cost savings. We continue to believe that Ayden will rapidly expand its market share within a structurally growing market, and we admire the constant innovation into useful, high value add, adjacencies for customers such as omni-channel platform services, and financing for customers.

In terms of portfolio activity, we initiated a new position in leading Human Capital Management (HCM) software provider Paylocity. Exposed to our Increasing financial resilience theme, Paylocity’s products enable its customers, which are primarily small businesses, to manage the increasingly complex demands of managing its employees. We believe HCM is key to the strength and resilience of SME’s as incorrect payroll and incorrect taxes have high costs when they are not processed correctly. The importance of the ensuring your workforce is engaged in a hybrid work environment places further importance on HCM within the workplace.

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


Past performance does not predict future returns

 

 

Sep-23

Sep-22

Sep-21

Sep-20

Sep-19

Liontrust Sustainable Future Managed
Growth 2 Acc

3.1%

-18.5%

22.7%

27.0%

9.5%

IA Flexible Investment

4.2%

-9.2%

18.3%

0.9%

3.2%

Quartile

3

4

2

1

1


*Source: FE Analytics, as at 30.09.23, 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.

All investments will be expected to conform to our social and environmental criteria. Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.

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.

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