Liontrust GF UK Growth Fund

• The Fund’s longstanding overweight in the Industrials sector weighed on returns amid tariff-related uncertainty, but we still favour these stocks for their strong IP, global distribution reach and robust – if cyclical – cash flows.
• Despite ongoing style and size headwinds, we remain committed to high-quality compounders; with valuations at extreme lows, we believe this presents a rare and compelling entry point.
• We believe several factors are aligning to create a more supportive environment for UK equities, particularly quality growth names in the mid and small-cap space.

The Liontrust GF UK Growth Fund returned -2.7%* in April. The Fund’s comparator benchmark, the FTSE All-Share, returned -0.3%.

UK equity markets initially endured a sharp sell-off after sweeping tariffs announced by US President Donald Trump – dubbed "Liberation Day" – sent shockwaves through global markets. However, sentiment improved later in the month following a shift in the US administration's approach, including a 90-day delay on tariffs for non-retaliatory countries and the removal of duties on a range of electronic goods. This softening in tone provided reassurance to investors and supported a partial recovery in stock prices.

A significant driver of the Fund’s underperformance was its longstanding overweight in the Industrials sector, favoured for its companies’ strong intellectual property, global distribution reach, and robust, though somewhat cyclical, cash flow returns on invested capital.

The sector, however, bore the brunt of the tariff uncertainty, with constituent names exposed to a broad-based sell-off as investors digested the implications of both direct tariff exposure and potential second-order effects on global economic growth. As the Fund’s holdings in the sector are generally comprised of businesses with broad global footprints (lending a degree of flexibility in terms of optimising manufacturing and distribution) and strong pricing power, we feel that the first-order effects of tariffs on our companies’ trading are well-contained. However, it is impossible to predict any secondary effects stemming from weaker global growth and this wider uncertainty weighed heavily on sentiment, as it also did for the Fund’s holdings in BP (-20%) and Shell (-14%).

A number of the Fund’s Industrials holdings updated on trading during the month, with positive announcements coming from Coats (-8.4%, which disposed of its US Yarns business, a move which should be accretive to margin) and Weir Group (-2.0%, which reported on positive order book trends for Q1 and held its outlook steady for the year).

Recruiter PageGroup (-11%) reported on ongoing difficult trading, with the uncertain backdrop understandably weighing on client and candidate confidence. However, we retain our confidence in the strength of the underlying business, which boasts a strong net-cash balance sheet and an experienced management team who are well versed in managing through past economic cycles.

Unexpected negative updates came, however, from both RWS Holdings and Bunzl. RWS Holdings (-44%) released a deeply frustrating trading update in which it alerted the market that despite returning to organic growth, mix issues and pricing pressure were impacting margin, resulting in a ~30% downgrade to consensus earnings. A new CEO has recently taken the helm and purchased a significant amount of stock following the warning.

Bunzl’s (-21%) profit warning caught the market, and the team, completely off guard, coming from a company with a long-standing track record of forecasting reliability. The warning stemmed from operational issues within its large US foodservice subsidiary, compounded by slight softness in the backdrop thanks to the macroeconomic uncertainty, prompting a ~10% downgrade. The share price fall brought the stock’s valuation to a level not seen since the global financial crisis, and after a reassuring meeting with management, we remain confident in the position and have topped up our holding.

Turning to the positives, Indivior (+17%) reported Q1 net revenue of $266 million, exceeding the consensus estimate of $243 million. Alongside the strong top-line performance, the company reaffirmed its full-year 2025 financial guidance, reinforcing confidence in the outlook and the turnaround strategy catalysed by the arrival of the activist investor Oaktree Capital on the shareholder register late last year.

Once again, BAE Systems (+13%) was among the top performers, as defence stocks continue to benefit from a sustained re-rating. This has been driven by escalating geopolitical tensions and enduring commitments to higher defence spending across Europe.

Shares in Moonpig (+9.5%) strengthened after the group released a solid trading update outlining in-line revenue and adjusted EBITDA margin at the top end of its guidance range, alongside strong cash generation, which prompted it to announce a £60 million extension to its inaugural £25 million share buyback programme.  

Gamma Communications (+10%) saw a partial recovery after the majority of the temporary stock overhang was cleared ahead of its early May move from the AIM to the Main Market, easing selling pressure and improving market sentiment.

While the persistence of style and size headwinds over recent years has been frustrating, our investment philosophy remains rooted in owning high-quality businesses with strong competitive advantage and the ability to compound returns over time. With valuations for such companies now at almost unprecedented lows, we see this as a rare and compelling entry point.

We believe several factors are aligning to create a more supportive environment for UK equities, particularly quality growth names in the mid and small cap space. US President Donald Trump’s recent actions have triggered a reassessment of the relative appeal of US versus international markets, including the UK, while also raising the likelihood of faster interest rate cuts, which would benefit the asset class.

There is also growing momentum around potential government policy support. We have engaged extensively with both government and regulators on issues including AIM, pension reform, and the regulatory burden on listed companies, and have been encouraged by their willingness to strengthen the UK’s capital markets.

This combination of improving relative asset allocation dynamics and potential policy action underpins our increasing confidence that capital will begin to flow back into the market.

Positive contributors included:

BAE Systems (+13%), Moonpig (+9.5%), RELX (5.0%), Unilever (+3.2%), Gamma Communications (+10%)

Negative contributors included:

Shell (-14%), BP (-20%), Bunzl (-21%), AstraZeneca (-4.7%) and RWS Holdings (-43%)