Liontrust Special Situations Fund

• The Fund’s longstanding overweight in the Industrials sector weighed on returns amid tariff-related uncertainty, but these stocks remain favoured for their strong IP, global distribution reach and robust – if cyclical – cash flows.
• Continuing last year’s trend of heightened M&A interest driven by stock valuation pressures, GlobalData confirmed it received “preliminary, conditional” takeover approaches from two private equity investors.
• We believe several factors are aligning to create a more supportive environment for UK equities, particularly quality growth names in the small and mid-cap space.

The Liontrust Special Situations Fund returned -2.7%* in April. The FTSE All-Share Index comparator benchmark returned -0.3% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 0.8%.

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.

The Fund’s underperformance largely reflects 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%).

Seven 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), Weir Group (-2.0%, which reported on positive order book trends for Q1 and held its outlook steady for the year) and JTC (-8.3%, which reported FY24 results showing good organic growth and a solid outlook for FY25).

Recruiters PageGroup (-11%) and Robert Walters (+3.9%) 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 businesses, which both boast strong net-cash balance sheets and experienced management teams 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. Notwithstanding that signal, the fund managers are conducting further research and analysis in light of the unexpected deterioration in trading and have reduced risk in the position in the meantime.

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.

Shares in data analytics and consultancy firm GlobalData (+20%), one of the Fund’s largest AIM-listed positions, rose sharply on the last day of the month after it confirmed it had received “preliminary, conditional” takeover approaches from two separate private equity investors. One proposal comes from funds managed by ICG Europe Fund, while the other is from KKR. Notwithstanding how we might feel about another of our high-quality holdings being taken over, which at this point is moot given that no firm takeover bid has been announced and no price level has been discussed, the news – and subsequent strong share price bounce, which only brought the stock back to levels at which it was trading in March – helps to support our firm belief that the Fund’s companies’ strong fundamentals will be rewarded eventually, in one way or another.

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.

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.

Meanwhile, Mortgage Advice Bureau (+9.7%) shares rose in the absence of any specific newsflow catalyst, potentially a beneficiary of improved sentiment due to its UK-centric exposure amid tariff uncertainty, as well as the potential beneficial impact of a faster downward interest rate trajectory on the UK housing market.

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 historic lows, almost unprecedented in the Fund’s near-20-year history, 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 small and mid-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:

GlobalData (+20%), Gamma Communications (+10%), DotDigital (+21%), Moonpig (+9.5%) and Alpha Group (+8.5%)

Negative contributors included:

RWS Holdings (-44%), BP (-20%), Shell (-14%), Bunzl (-21%) and Spectris (-14%)

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

*Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, primary class.

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.

The Funds managed by the Economic Advantage team:

• May invest in smaller companies and may invest a small proportion (less than 10%) in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, a 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 a fund to defer or suspend redemptions of its shares. 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.
• 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.
• May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
• Outside of normal conditions, 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.

The risks detailed above are reflective of the full range of Funds managed by the Economic Advantage team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

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.

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