Liontrust GF UK Growth Fund

April 2019 review

The Liontrust GF UK Growth Fund returned 4.3% in April, compared with the 2.7% return from the FTSE All-Share Index.

 

Equity markets were buoyant, helped by indications that a breakthrough in US-China trade talks might be imminent. There has also been growing talk of ‘Goldilocks’ conditions for stockmarkets: where US macro conditions improve, but not by enough to threaten the Fed’s new patient approach to further policy tightening. UK indices were also aided by the successful postponement of the Brexit deadline from 12 April to 31 October.

 

A ‘risk-on’ trade saw equities rally, with the greatest gains coming further down the market cap scale. The FTSE250 ex-IT and FTSE Small Cap ex-IT indices rose 4.4% and 4.5% respectively, outstripping the FTSE100’s 2.3% performance.

 

While March saw ‘defensive growth’ companies feature prominently in the Fund, April’s stand-out performers were typically more cyclical. The Fund’s large allocation to the industrials segment of the market was a significant positive as it lead the FTSE All-Share sector breakdown with a 7.5% return. We have historically found substantial Economic Advantage among the engineers and support services groups which sit within the industrials sector.  RWS Holdings (+25.3%), Renishaw (+21.8%), Paypoint (+17.4%), Spirax-Sarco Engineering (+15.7%), PageGroup (+14.5%), Rotork (+11.6%), Aggreko (+10.7%) and Intertek (+10.2%) all notched up double-digit returns for the month.

 

A selection of these stocks also issued investor updates. A half-year trading statement from RWS Holdings indicated that adjusted profit before tax for the period to 31 March 2019 will be at least £35.5m, a 24% year-on-year increase and ahead of consensus expectations. Overall revenue growth amounted to 10% on an underlying like-for-like basis, boosted by a strong performance from the recently acquired Moravia business. RWS is a provider of intellectual property support services such as translation and localisation.

 

PageGroup, the recruitment company, generated an 11.7% rise in constant currency gross profit in the first quarter of 2019, as international operations compensated for uninspiring UK growth of 1.7%. Asia Pacific gross profit expanded by 16%, EMEA rose 10% and the Americas grew by 22%. While the UK performance continued to be constrained by “Brexit related uncertainty impacting candidate and client confidence”, the US registered a record quarter following 24% growth. PageGroup expects to deliver 2019 operating profits which are in-line with current consensus expectations of £160m.

 

In its own Q1 update, Rotork referred to a gradual improvement in activity levels compared with the fourth quarter of 2018, which leaves it on course for modest sales growth over 2019.

 

Staying in the Fund’s industrials sector holdings, a notable outlier was the AA (-18.5%). It slid on the release of a full year trading update despite maintaining earnings guidance for the period to 31 January 2019. On the same day as the trading statement, the AA announced that it had won a contract with Admiral to provide roadside assistance to its 4.3 million motor insurance customers. The company is in a midst of a strategic refocus, a task which is unlikely to be helped by the unexpected resignation of its CFO at the end of the month, which saw the shares take another leg lower.

 

Indivior (-60.2%) clearly delivered the most disappointing share price performance in the portfolio, tumbling after an indictment was issued in connection with a US Department of Justice investigation relating to its marketing of its core Suboxone product. Regulatory scrutiny of drug company marketing practices is an occupational hazard of the sector (witness GSK’s recent Chinese experience): the severity of Indivior’s share price reaction was perhaps due in part to this news coinciding with the arrival of generic competition to the company’s principal product Suboxone. The impact of the share price fall on the Fund’s performance was however limited – Indivior is the smallest individual position in the Fund, reflecting the trade-off between the known risks (but unknown timescale) of contingent liability (litigation) and patent expiry, against very attractive valuation and underlying CFROC (cash flow return on capital) characteristics. We expect the latter to prevail when the former have fully crystallised if the company’s new Sublocade product can fulfil its potential.

 

Positive contributors included:

RWS Holdings (+25.3%), Renishaw (+21.8%), Hargreaves Lansdown (+21.1%), Spirax-Sarco Engineering (+15.7%) and PageGroup (+14.5%).

 

Negative contributors included:

Indivior (-60.2%), AA (-18.5%), AstraZeneca (-6.7%), British American Tobacco (-6.4%), Petrofac (-5.7%).

 

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

 

 

Mar-19

Mar-18

Mar-17

Mar-16

Liontrust GF UK Growth C3 Inst Acc GBP

6.4

2.0

21.9

1.9

FTSE All Share Index

6.4

1.2

22.0

-3.9

 

*Source: Financial Express, as at 30.04.2019, total return (net of fees and income reinvested), sterling terms, C3 institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.03.2019, total return (net of fees and income reinvested), primary class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital.

Some of the Funds managed by the Economic Advantage team invest primarily in smaller companies and companies traded on the Alternative Investment Market.  These stocks may be less liquid and the price swings greater than those in, for example, larger companies. The performance of the  GF UK Growth Fund may differ from the performance of the  UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

 

Disclaimer

 

The information and opinions provided 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.  Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

 

Friday, May 17, 2019, 12:35 PM