Liontrust UK Ethical Fund

• The portfolio delivered strong returns despite a turbulent quarter marked by tariff-related market disruption, with support from robust earnings and upbeat guidance across holdings.
• Paragon Banking Group and AJ Bell were among the top performers, while Mobico and Treatt were among the largest detractors.
• We exited our position in Mobico Group, believing there is now a risk that it lacks sufficient capital.

The Fund returned 8.6% over the quarter versus the IA UK All Companies sector average of 7.4% and the MSCI UK Index’s 2.4% (both of which are comparator benchmarks)*.

It was encouraging to see such positive performance over what was a highly volatile quarter, during which tariff concerns overshadowed the broader macroeconomic picture in April. The subsequent recovery was driven by robust financial results and optimistic outlook statements from many of our portfolio companies.

We believe the UK domestic economy is poised for greater stability and modest growth. Companies exposed to this environment are well positioned to benefit from any return to more typical economic conditions.

Specialist lender Paragon Banking Group (+28%), which is held under our Financing housing theme, delivered a stronger-than-expected first-half performance, with new lending up 11% to £1.38 billion. Mortgage advances rose 25% to £812 million, driven primarily by buy-to-let lending and supported by the accelerated rollout of its digital origination system. While redemptions increased, they remain historically low, and customer retention remains strong.

Net interest margin came in at 313bps, just 1bp lower than the second half of 2024 and above the full-year guidance of ~300bps. Although some margin compression is expected in the remainder of the year, it is likely to be more modest than previously anticipated. As a result, full-year margin guidance has been upgraded to “over 300bps.”

AJ Bell (+28%) shares surged following interim results that exceeded expectations. The investment platform operator, which is held under our Saving for the future theme, reported a profit boost, driven by elevated customer activity amid heightened market volatility in March and April.

The volatility – triggered by US tariff announcements and subsequent market swings – spurred trading, benefiting AJ Bell's transaction-driven revenue. The firm now expects full-year revenue and pre-tax profit to exceed earlier guidance.

Shares in DFS Furniture (+34%) and Admiral (+19%) rose over the quarter, despite the absence of any material corporate news. DFS is held under our Leading environment or social management theme, and is the UK’s largest furniture manufacturer, producing around one-third of its own products. The company has established itself as an industry leader in environmental and social performance, increasingly leveraging its scale to drive higher standards in raw material sourcing, supply chain labour practices, and customer experience. By better managing its social and environmental impacts, DFS is not only contributing to positive outcomes but also strengthening its competitive position. We believe this focus on sustainability should support further market share gains, particularly as demand for more responsible products continues to grow.

Admiral is held under our Insuring a sustainable economy theme and offers motor and home insurance, primarily across the UK and parts of Europe. Insurance plays a vital role in providing financial protection against loss or damage – particularly for assets such as cars and homes, which are often among an individual’s most significant investments. By enabling the spread of risk, Admiral delivers an essential service that supports financial resilience and long-term economic stability.

Mobico Group (-52%) – a small holding within the portfolio – was among the detractors, as its shares dropped sharply following the announcement of the sale of its US School Bus division to I Squared Capital for £457 million. The disposal, part of the company’s strategic realignment, was poorly received by investors.

Formerly known as National Express, the transport group also warned of a “significant statutory loss” tied to goodwill impairments, the derecognition of deferred tax assets, and additional onerous contract provisions related to its German operations. The combination of asset disposal and fresh loss guidance weighed heavily on market sentiment. We believe there is now a risk that it lacks sufficient capital, and have therefore taken the decision to exit the position.

Treatt (-24%) shares declined sharply after the natural ingredients specialist reported disappointing first-half results and lowered its full-year sales and profit guidance.

The company, which supplies extracts and ingredients to the beverage, flavour, and fragrance industries and is held under our Delivering healthier foods theme, now expects pre-tax profit for the year to September 2025 to fall between £16 million and £18 million – below the £20.9 million consensus forecast. The downgrade was attributed to weakening consumer confidence in North America, exacerbated by geopolitical uncertainty, and persistently high citrus prices, which have dampened customer demand.

Our portfolio remains focused on high-quality, mid-cap growth companies aligned with our sustainable investment themes. Our analysis indicates that these businesses continue to offer compelling long-term growth prospects, yet they are trading at a meaningful discount to their historical valuations. As such, while we are encouraged by the recent period of strong performance, we believe there is considerable further upside.

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

*Source: FE Analytics, as at 30.06.25, total return, net of fees and income reinvested.

**Source: FE Analytics, as at 30.06.25, 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.com 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.