Liontrust GF UK Growth Fund

• Global equity markets rebounded amid signs of easing US-China trade tensions, including significant tariff cuts and a new US/UK trade agreement.
• BAE Systems and Smiths Group issued upbeat trading statements which reassured over the potential impact of US tariffs.
• Strategic business reviews add share price momentum at Smiths Group and IMI.

The Liontrust GF UK Growth Fund returned 3.0%* in May. The Fund’s comparator benchmark, the FTSE All-Share, returned 4.1%.

Global equity markets continued their recovery from April’s sell-off on more signs of a de-escalation of the US trade war. Developments in May included the US and China slashing their reciprocal tariffs – from 145% to 30% on Chinese goods and from 125% to 10% on US goods – and the agreement of a US/UK trade deal.

BAE Systems (+9.6%) extended its very strong year-to-date share price performance, once again featuring in the Fund’s top monthly contributors after issuing an AGM update. The defence and aerospace group reconfirmed guidance for 7% to 9% sales growth this year and commented on a supportive demand backdrop as most regions look poised for higher defence spending. BAE also noted that its largely domestic supply chain for equipment delivered to the US should minimise exposure to trade tariffs.

Smiths Group’s (+16%) organic revenue growth accelerated to 10.6% in Q3, leading it to upgrade full-year guidance toward the top end of its existing 6% to 8% growth range. The diversified engineer saw growth across all its businesses, with particularly strong showings from Smiths Detection and Smiths Interconnect – two units earmarked for sale or spin-off. Smiths Group, under pressure from an activist shareholder, has recently announced plans to streamline its operations by concentrating on high-performance industrial technologies while divesting non-core business units. As with BAE Systems, Smiths Group also noted that its US goods (around 45% of sales) are predominantly produced locally – meaning exposure to trade tariffs should be limited.

IMI (+12%) also announced a strategic review, with its transport division – responsible for 8% of 2024 sales – under consideration for options such as a sale. The industrial engineer also released an in-line quarterly trading update which maintained 2025 guidance for single-digit organic revenue growth.

Meanwhile, Moonpig (+7.8%) extended its strong run of recent share price performance as it commenced a new share buyback scheme, which the company had heralded at the time of its recent April trading update, citing its exceptional cash generation. Share buybacks are increasingly being used by companies across the portfolio as an efficient capital allocation tool, with many boards recognising that the pressure on UK equity valuations in recent years has left their own shares trading at levels which are difficult to ignore.

Although Auction Technology (-22%) delivered in-line interim results and maintained its full-year guidance, its statement also flagged a significant amount of uncertainty over the near-term trading environment. The operator of online auction marketplaces and services grew revenue by 3% to $89 million in the period to 31 March as gross merchandise value stabilised. It saw good trading during the first five months, but activity levels slowed in March as trade buyers and consumers took stock of macroeconomic volatility. Although trading subsequently stabilised in April, Auction Technology noted that the uncertain economic backdrop and threat of tariffs leaves it little near-term demand visibility.

Gamma Communications (-10%), the provider of cloud-based enterprise communications, announced in an AGM update that it has begun to cut costs in response to increasing evidence of soft UK market conditions. Based on these actions, it still expects to meet market expectations for earnings in 2025.

On 2^nd May, Gamma completed a move from the AIM market to the London Stock Exchange Main Market, leaving it on track for inclusion in the mid-cap FTSE 250 at the next index review. Technical factors had contributed to some share price weakness in relation to the move as investors motivated by AIM tax reliefs exited the shareholder list, but in the medium term we expect greater liquidity and investor interest to catalyse a reversal of this dynamic. 

Diageo (-3.6%) reported Q3 net sales growth of 2.9% as 5.9% organic growth was partially offset by unfavourable currency movements. The drinks giant maintained its recent guidance: that organic net sales in the second half of its financial year (January - June 25) will see an improvement compared with the first half, but that there will continue to be a slight decline in organic operating profit. Diageo recently dropped its medium-term 5% to 7% net sales growth target due to macroeconomic uncertainty, not least around trade tariffs.

Pearson (-2.6%) lost some ground despite a Q1 trading update which maintained 2025 guidance. The group recorded 1% growth in the quarter but expects an acceleration in the second half of the year. 

Integrafin was added to the portfolio during May. The company owns the Transact B2B investment wrap platform, one of the largest in the UK. It has consistently aimed to differentiate itself via high levels of client service, engendering deep and loyal relationships with its independent financial advisory clients, as well as the ownership of its own proprietary technology. The decision to invest in proprietary technology is in contrast to almost all of Transact’s competitors, which mainly utilise third party offerings, but it is one which Integrafin believes is key to being able to shape the development of the platform to best suit customer needs. With high levels of recurring fee income, the business model is robust, while the company has a current cash flow return on invested capital of 16.6% - very comfortably ahead of both its own cost of capital and the wider market average.

Positive contributors included:

Smiths Group (+16%), IMI (+12%), BAE Systems (+9.6%), Moonpig (+7.8%) and BP (+4.4%).

Negative contributors included:

Auction Technology (-22%), Gamma Communications (-10%), Diageo (-3.6%), Domino’s Pizza Group (-3.1%) and Pearson (-2.6%).