Where are you?
  • Austria
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Guernsey
  • Ireland
  • Italy
  • Jersey
  • Luxembourg
  • Malta
  • Netherlands
  • Norway
  • Portugal
  • Spain
  • Singapore
  • Sweden
  • Switzerland
  • United Kingdom
  • Rest of World
It looks like you’re in
Not your location?
And finally, please confirm the following details
I’m {role} in {country} and I agree to comply with the terms of the website.
You are viewing as from Change

Liontrust SF Defensive Managed Fund

Q4 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 9.7% over the quarter, versus the 5.7% IA Mixed Investment 20-60% Shares sector average (the comparator benchmark)*.

The future of sustainable investment has been questioned by a number of different parties recently. Yet, in contrast, we are more excited about the prospects for the sustainable themes and stocks we invest in than we have been for many years.

We believe interest rates are at peak levels and should fall towards central banks’ targets by mid to late 2024. The current higher interest rate environment will likely lead to lower economic growth, resulting in early cuts in interest rates.

Given this view and the fact that interest rate rises were the primary catalyst for the sell-off in the long duration growth equities in which we invest, we should expect that the valuation multiples applied to growth equities should stabilise in conjunction with the peak in interest rates/yields. This would remove a significant structural returns headwind.

Indeed, the final quarter of 2023 delivered strong performance for investors, with positive returns across most major asset classes as a number of softer inflation prints in the US, Europe and UK eased investor worry regarding the length of time that interest rates would remain at elevated levels.

We are confident about the outlook for our sustainable investment strategies and believe they will build on their long-term positive track record as we back those businesses which are growing profitability while delivering solutions to critical environmental and social problems.

Those businesses which are providing these solutions will potentially access vast growth opportunities. In many cases, the speed and scale of this growth is likely to be underestimated in the valuation of their shares.

This is where the opportunity lies – finding great companies and helping to solve challenges we face as a society and world, whose prospects are undervalued by the market.

The Fund’s fixed income allocation delivered strong performance driven by the significant moves lower in government bond yields and credit spreads in the fourth quarter. The catalyst was softer inflation releases in US and Europe, before the Federal Reserve (Fed) signalled that it was moving to a less hawkish stance, ushering in a sharp rally across financial markets. The speed and severity of these moves surpassed even the large moves seen earlier in the quarter, as markets lurched to pricing multiple rate cuts in 2024 and beyond.

In terms of stock attribution for the fourth quarter, after poorly received Q2 results in August, a more reassuring Q3 update from Adyen sparked a relief rally that recouped some of the lost ground. The company disclosed 22% year-on-year growth in net revenue to 414m and set a medium term growth target of low- to high-twenties revenue growth through to 2026. Adyen operates a global payments platform which services businesses globally. It provides a very important service for a small fee, thereby playing an important role in making transacting online safer and easier. The company is a core part of our Enhancing digital security theme.

Another notable performer was TopBuild, which we purchased over the quarter. Held under our Improving the efficiency of energy use theme, TopBuild is the largest installer and distributor of insulation products and related building materials in the US. It provides all the products and installation services for single family and multi-homes and also distributes products for other installers of home insulation. Highlights for the company over the period were a robust Q3 earnings release in October and a ratings upgrade in December.

American Tower also performed strongly following the release of an encouraging Q3 earnings release. Exposed to our Connecting people theme, US-based American Tower owns, operates and develops wireless communications and broadcast towers worldwide, renting its portfolio of over 220,000 communications sites to mobile network operators and space and connectivity in its newly acquired US data centres to a wide client base. American Tower announced that it expects total property revenue in 2023 of between $10.895 billion to $10.985 billion - up $60 million from its previous range. In addition, the company raised its operating profit guidance for 2023 by 6.1%, quoting a range between $7.01 billion to $7.09 billion.

Specialist lender Paragon Banking Group was among the top contributors, performing strongly in December following the release of its annual results. Held under our Building better cities theme, Paragon provides finance for professional landlords and small and medium-sized enterprises (SMEs), with a long history of low impairments and high service levels. Its lending helps to support the sizeable private rental market and the development of new houses. The company noted a stronger-than-expected 25% increase in annual profits, while also announcing another £50 million share buyback.

Among the detractors, while Paylocity’s 25% year-on-year revenue growth in the quarter to 30 September satisfied investors, its forecast for 19% growth next quarter was seen as underwhelming. Paylocity is a cloud-based payroll and human capital management software provider. We hold the stock under the Increasing financial resilience theme. Human Capital Management (HCM) is key to the strength and resilience of small and medium sized companies, and has assumed further importance in ensuring workforce engagement in hybrid work environment.

Shares in UK wealth manager St. James’s Place tumbled following the announcement that it was reviewing its fees and charges. The company is aligned with our theme of Saving for the Future, recognising value that companies such as St James Place offers in helping people prepare for their financial future in a backdrop of increasing financial complexity and diminishing state/employer support.

We have long recognised that the charging approach from the company is distinctive, however felt that over the lifetime of a client it was reasonable given the comprehensive advice and overall value of their service. This view is supported by consistently high customer satisfaction scores and the industry leading advisor training St James Place provides. Earlier this year we met with the Management team following the reduction of long-term client fees in light of the new Consumer Duty rules from the FCA. We felt they were taking proactive sensible actions to the benefit of customers and incentivise long-term investing.

The recent news indicates that they will now additionally be scrapping the exit fee element of their fee model and lower their overall. Our initial view is that this will lead to a hit on shorter term earnings and profitability but the longer term picture is less affected. Ultimately if clients are happy with the service and advice they receive then the company will retain and grow assets under management. This is the metric we focus on, and thus far seems to have held up well. It is under review, but we continue to hold our position in the portfolios.

In terms of portfolio activity, we initiated a position in pest control company Rentokil Initial, under our Enabling healthier lifestyles theme. Rentokil helps to keep our urban environment clean and healthy by preventing pest infestations in businesses and homes and providing hygiene services.

Pest control companies help to protect human health and property from damage from pests such as mosquitoes, termites and vermin. The number and size of cities drives the demand for pest control because they provide ideal environments for breeding (warmer and lack of predators).

We also bought Spectris, the seller of high-tech instruments and related  services that improve the performance of the life sciences, automotive, and industrial sectors, under our Better monitoring of supply chains and quality control theme. Through measurement and analysis their clients can analyse and understand how to increase the effectiveness of medicines, develop longer range batteries, test new electric car designs and even electric planes.

We initiated a position in Edwards Lifesciences, the developer and supplier of patient-focused medical innovations for heart disease and critical care monitoring under our Enabling innovation in healthcare theme. All of the company’s products and services provide lifesaving results. As compared with open heart surgery, minimally invasive techniques (and percutaneous in the case of Edwards) are lower risk for the patient, as well as cheaper and timelier for both they and the healthcare system as a whole.

We also bought Veralto under our Improving the management of water theme. Veralto is a spin-out of Danaher’s ‘Environmental and Applied Solutions’ segment, which focusses on providing tools and services to enable the testing and treatment of water, as well as the creation and key regulatory printing of consumer-packaged goods.

We sold our position in air conditioning and heating pump provider Daikin. We have previously flagged the military division of Daikin with our advisory committee, and have been satisfied it is both immaterial (at around 0.50% of sales) and a legacy business which continues to shrink. We discussed the production of white phosphorus, which is manufactured solely for artillery shells that produce smoke (i.e., not incendiary) and are used purely for training purpose. The advisory committee felt the risks in the current geo-political environment meant that there was a material chance that the production of white phosphorous may one day be used as a weapon. So whilst this did not constitute a breach of screen, they felt we needed to engage with Daikin to get them to divest its military division – something we have done on numerous occasions, without any success.

We also identified an emerging risk from the chemicals division in Daikin – the production of Polyfluorinated Substances (PFAS). These “forever chemicals” are an emerging risk to both food and water systems, and our process is tracking the issue through testing and detection companies.

We have come to the conclusion that these two risks are material to the Daikin investment case, and despite the positive environmental impact of the Daikin business, these risks weigh heavily on Daikin. We therefore decided to exit our position in the company.

We also sold e-signature software provider DocuSign, which was held under our Delivering a circular materials economy theme. While DocuSign continues to dominate the high-end of the e-signature market, the rest of the market is increasingly commoditised, and pricing well below what works for DocuSign. In our opinion, the company needs to accelerate core growth above 10% in the near-term and thus needs to carve out a new market and new products in the contract lifecycle management software (CLM) space. While this may work, we believe the chances they’ll dominate as in e-signature are lower than we require for investments in our process – we therefore exited our position in the company.

We also sold our position in life sciences company ABCAM after an acquisition bid at a 40% premium to the share price from Danaher Inc.

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







Liontrust Sustainable Future Defensive Managed 2 Inc






IA Mixed Investment 20-60% Shares












Source: FE Analytics, as at 31.12.23, total return, net of fees and income & interest reinvested.

Source: FE Analytics, as at 31.12.23, primary share class, total return, net of fees and income & interest reinvested.

Understand common financial words and terms See our glossary

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.


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.

Commentaries Sustainable Fixed Income

Related commentaries

See all related
Fund updates
Liontrust Sustainable Future Conclusion Outlook May 2024 video update
icon 28 May 2024
Sustainable Future (SF)
Fund updates
Sustainable Future Managed Strategies May 2024 video update
icon 28 May 2024
Sustainable Future (SF)
Fund updates
Liontrust Sustainable Future Funds May 2024 video update
icon 23 May 2024
Sustainable Future (SF)
Fund updates
Liontrust SF Defensive Managed Fund Q1 2024 review
icon 26 April 2024
Commentaries Sustainable Equity
Lionesses Multiple authors
Sustainable Investment themes 2023 review
icon 7 February 2024
Mike Appleby
Simon Clements Simon Clements
SF Managed Funds 2023 review
icon 7 February 2024
Simon Clements