- After a strong finish to 2024 for the Fund, sentiment once again turned cautious towards the small and mid-sized businesses to which we have an overweight exposure.
- Natwest and Helios Towers move higher on the strength of Q4 trading, while Mortgage Advice Bureau rallies after unveiling ambitious medium-term growth targets.
- Trainline continued to report good European growth and penetration into UK e-ticketing, but the revival of Great British Railways by the Labour government is acting as an overhang.
The Fund returned -6.0% over the quarter versus the IA UK All Companies sector average of 0.2% and the MSCI UK Index’s 6.4% (both of which are comparator benchmarks)*.
Although the Fund delivered a strong finish to 2024 – outperforming both its benchmark and IA sector – it faced headwinds in the opening quarter of 2025. Despite a rise in UK equities over Q1, the gains were largely concentrated among larger companies. In contrast, sentiment toward UK small and mid-sized businesses remained cautious, reflecting persistent concerns over the UK’s economic outlook. This environment proved challenging for the Fund, which holds a significant overweight in this segment relative to its benchmark and peers. As a result, this positioning was a key contributor to the Fund’s underperformance during the three-month period.
The Fund’s top contributor was NatWest (+16%), after delivering stronger-than-expected fourth-quarter profit. The retail-focused bank, which is exposed to our Financing housing theme, reported income of £3.8 billion, up 8%, driven by strong net interest income. Net interest margin improved from 1.99% to 2.19%.
Pre-tax operating profit rose 19% to £1.5 billion, beating the £1.4 billion forecast, supported by top-line growth which outstripped a 5% increase in operating costs. Impairments came in better than expected at £66 million, with default rates remaining low. The CET1 ratio stood at 13.6%, within the group’s 13–14% target range.
Shares in Mortgage Advice Bureau (MAB, +23%) rose after the mortgage specialist unveiled new medium-term targets, a revised capital allocation framework, and a progressive dividend policy. Held under our Transparency in financial markets theme, MAB announced ambitions to double revenue from 2024 levels, achieve an adjusted pre-tax profit margin above 15%, exceed 100% cash conversion, and double its market share.
Shares in mobile tower operator Helios Towers (+16%) moved higher after the company’s 2024 earnings exceeded consensus estimates. Site expansion has been modest, rising 2% over the past year. However, the number of mobile network operators per site has increased by 9%, lifting the tenancy ratio from 1.9 to 2.05. This puts the company firmly on track to reach its target ratio of 2.2 by 2026.
Looking ahead, the company aims to add 2,000 to 2,500 new tenants this year. Even with capital expenditure projected at $150-180 million, Helios anticipates free cash flow will rise significantly – from $19 million to between $40-60 million.
Moving on to the detractors, shares in Trainline (-37%) have had a volatile six months. In late 2024, Trainline posted positive upgrades to guidance due to good European growth and penetration into UK e-ticketing. In line with our theme making transport more efficient or safer, Trainline contributes to the modal shift towards rail by increasing convenience for consumers. However, the overhang of Great British Railways (GBR) brought back by the Labour Government remains, coupled with weaker US inbound tourists and slower liberalisation in France, all leading to poor performance at the FY25 trading update. Trainline posted 12% revenue growth over the year, with strong performance in Spain up 41%. Margins were better than expected, showing positive steps in profitability and cost savings.
Having performed strongly through the second half of last year, review platform Trustpilot (-28%), gave back much of this performance in the first quarter of 2025. Shares in the company initially surged in January following news that annual adjusted EBITDA was expected to exceed forecasts. However, the stock steadily declined throughout the remainder of the quarter, despite strong trading performance in 2024. Bookings rose 23% year-over-year to $239 million – equivalent to 21% growth on a constant currency basis. Annual recurring revenue (ARR) also increased by 21% to $231 million, while total revenue grew 18% to reach $211 million.
We were encouraged by the headline trading performance. However there is a concern about the level of investment needed to deliver growth. We do believe it can be a successful platform for high quality reviews, however there remains a degree of risk. For this reason we had been reducing our position in the portfolio ahead of this latest trading update
Fragrance and flavouring manufacturer Treatt (-29%) experienced a steady decline throughout the period. Held under our Delivering healthier foods theme, the shares struggled for momentum with some market concern around the long term growth potential in the stock, prompting forecast downgrades from covering analysts. Additionally, the broader ingredients sector saw weak sentiment given the rotation into value and a soft US consumer.
With regards to portfolio activity, we initiated positions in ARM and Howden Joinery, while exiting holdings in Learning Technology Group and Oxford Nanopore.
Added under our Improving the efficiency of energy use theme, Arm develops intellectual property that bridges semiconductor hardware and the software controlling it. Its RISC (Reduced Instruction Set Computer) architecture is more energy-efficient than standard ISAs due to its simplified instruction set, reducing the complexity of computations.
Howden is the UK’s largest kitchen manufacturer with vertically integrated trade-only business model. It has over 800 depots across the UK and account for over 40% of kitchen installation. Exposed to our Leading ESG management theme, Howden uses its scale advantages to drive sustainability in the supply chain in terms of timber, and have industry leading employee and customer satisfaction rates. The company provides an example to others in the consumer sector in terms of managing its ESG impacts.
Learning Technologies was sold following its acquisition by private equity. While we voted against the take-private proposal at the Extraordinary General Meeting due to concerns over the opportunistic timing and low valuation, the proposal was ultimately approved. Oxford Nanopore was sold due to a lack of improving fundamentals, intensifying competitive pressures, and continued concerns around its strategic focus and cost discipline.
Discrete years' performance (%) to previous quarter-end**:
|
|
Mar-25 |
Mar-24 |
Mar-23 |
Mar-22 |
Mar-21 |
|
Liontrust UK Ethical 2 Acc |
1.4% |
5.9% |
-14.5% |
-7.7% |
45.2% |
|
MSCI UK Index |
5.1% |
7.6% |
-1.9% |
5.4% |
38.0% |
|
IA UK All Companies |
12.0% |
8.5% |
5.6% |
19.1% |
20.0% |
|
Quartile |
3 |
4 |
4 |
4 |
1 |
*Source: FE Analytics, as at 31.03.25, total return, net of fees and income reinvested.
**Source: FE Analytics, as at 31.03.25, primary share class, total return, net of fees and income reinvested.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments
- All investments will be expected to conform to our social and environmental criteria.
- 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.
- The Fund may invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- The Fund will invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares.
- 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.
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.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It 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.
This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, 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. 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.
