Liontrust Special Situations Fund

• Global equity markets rebounded amid signs of easing US-China trade tensions, including significant tariff cuts and a new US/UK trade agreement.
• A strong AIM and small cap rebound saw a number of holdings registering double-digit share price gains.
• Alpha Group and Craneware the latest fund holdings to attract takeover interest.

The Liontrust Special Situations Fund returned 5.3%* in May. The FTSE All-Share Index comparator benchmark returned 4.1% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 5.1%.

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.

In this more risk-on environment, the Fund benefited from a strong rebound in many of its small cap and AIM-listed holdings, with a number of these positions registering double-digit share price gains during the month. While these moves so far represent but a fractional reversal of the extreme de-rating across the smaller company segment of the portfolio over the past few years, it is nevertheless cheering to see significant signs of life emerging. We have consistently sought to emphasise that despite the brutal underperformance of mid and small caps since the end of 2021 relative to their large cap peers, the Fund remains resolute in its conviction that such companies retain their highly attractive growth compounding potential over the longer term. It has maintained its exposure so that our investors may benefit when the cycle finally turns again in favour of smaller companies. The Fund’s notable beneficiaries from May’s rally included Focusrite (+22%), Pebble Group (+22%), Impax Asset Management (+21%), YouGov (+16%), Everplay (+14%) and Fevertree Drinks (+12%).

Turning to newsflow-driven moves, Big Technologies (+32%) took strides to put this year’s legal drama behind it as it confirmed the appointment of a new CEO and CFO. Its previous CEO and founder, Sara Murray, was dismissed in March, with the company stating she had failed to disclose interests in entities with substantial shareholdings in the company. Full-year results released during the month showed a decline in 2024 revenue and profits but commented that the new year has begun in line with expectations, with the company now focusing on the significant opportunity to grow in the US market.

Interim results from AJ Bell (+17%) outlined strong growth momentum which has carried over to the start of the second half of its financial year. The investment platform provider now expects revenue and profits for the year to 31 March 2026 to exceed its prior guidance. AJ Bell added 51,000 customers in the first half of its year – 9% growth – while assets rose 5% to £90.4 billion. The group also saw investors react to significant market volatility by increasing trading activity.

A Q3 trading update from Renishaw (+15%) showed an encouraging 5% year-on-year increase in revenues after good growth in machine tool probe sales to consumer electronics customers and position encoder sales to the semiconductor sector. The manufacturer of high-tech precision measuring and calibration equipment also noted its exposure to tariff policy volatility through the 20% of its sales into the US and moved to narrow and marginally reduced its full year forecast ranges.

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 have 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.

One of the most notable features of the month’s activity was a continuation of last month’s theme of a resurgence of inbound M&A interest in portfolio holdings. Following on from private equity interest received by premium business research and data provider GlobalData on the last day of April, two further holdings attracted approaches from potential acquirers in May.

Corporate foreign exchange specialist Alpha Group International (+16%) rose on confirmation of bid interest from US-based Corpay, with Alpha’s board of directors confirming it had rejected a preliminary cash proposal. However, on 30^th May Alpha Group stated it had subsequently had constructive talks with Corpay which led it to seek an extension (to 7^th July) for the Takeover Panel’s ‘put up or shut up’ deadline for a formal offer to emerge. S&P 500 constituent Corpay provides corporate expense payments systems.

Bid interest also emerged for Craneware (+12%), with private equity group Bain Capital confirming it is considering an offer. Bain has until 13 June to either indicate its intention to make a firm offer or walk away.

Positive contributors included:

 Big Technologies (+32%), AJ Bell (+17%), Alpha Group International (+16%), Renishaw (+15%) and Craneware (+12%).

Negative contributors included:

Auction Technology (-22%), Gamma Communications (-10%), Robert Walters (-8.4%), Diageo (-3.6%) and Domino’s Pizza Group (-3.1%). 

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

*Source: Financial Express, as at 31.05.25, 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.

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