Liontrust SF UK Growth Fund

Q2 2018 review

The Fund returned 10.1% over the quarter, outperforming both the IA UK All Companies sector average of 9.1% and 9.4% from the MSCI UK Index*.

 

Our process targets businesses that can grow structurally, driven by the shift towards a global economy that is more efficient, provides a higher quality of life and is more resilient.

The UK market recovered strongly from the lows in March as better economic data and encouraging corporate news buoyed markets.

Within the portfolio, Oxford BioMedica was a major contributor to performance. After being added to the portfolio in November, the share price has more than doubled at the time of writing.

During the quarter, the company received positive news on its gene therapy partnership with Novartis for cancer treatment. Gene therapy involves introducing normal genes into cells in place of missing or defective ones. There are now thousands of diagnosed genetic disorders and while it is still early days, we have begun to see the approval and commercial use of a number of therapies targeting these, in Europe and more recently the US.

The production of viral vectors (the mechanism to introduce the new gene to the body) is a complicated step in developing these therapies and Oxford BioMedica has invested significant time and money to ensure it is the leading producer of one of these viral vectors (called lentivirus). 

Also within our Enabling innovation within the healthcare system theme, GW Pharma received approval for its cannabis based Epidiolex, for treatment of epilepsy. This is a company we have held since 2001 so this is welcome news.

Fifty million people worldwide are estimated to have Epilepsy but research into therapies has been relatively underfunded and 30-40% of patients are resistant to drugs. By focusing on orphan diseases (defined in Europe as affecting fewer than five people per 200,000) such as childhood epilepsy, GW receives benefits including longer exclusivity and a cheaper/quicker registration process.

Elsewhere, ZPG Group, the property technology company that owns popular brands such as Zoopla and uSwitch, received a bid approach from the US private equity company Silverlake. Our internal valuation of modelling future expected cashflows led us to value the business at some 22% above the £4.90 bid price and as such, we felt the offer undervalued the prospects of the business: as minority shareholders however, we had to accept it.

 

This is not the first time one of our holdings has been acquired opportunistically by businesses with longer investment horizons than most public market participants. ARM and Shawbrook are two examples that come to mind of businesses that featured in our portfolios that were also acquired at a considerable discount to their intrinsic value.


Detractors over the quarter included BTG, where the FDA ruled against one of its treatments for emphysema, and Crest Nicholson as the homebuilder reported slowing sales of higher priced houses. We believe both companies still have strong long-term prospects.

During the quarter, we sold our position in Melrose. Its acquisition of GKN means the business now has too much defence exposure, which is excluded from this Fund’s strategy.

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

 

 

Jun-18

Jun-17

Jun-16

Jun-15

Jun-14

Liontrust Sustainable Future UK Growth 2 Acc

13.4

27.1

-3.8

15.9

12.2

MSCI UK

8.2

16.7

3.4

-0.2

12.3

IA UK All Companies

9.1

22.5

-4.1

7.0

14.0

Quartile

1

1

3

1

3

 

*Source: Financial Express, as at 30.06.18, primary share class, total return, net of fees and income reinvested.

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. 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 content 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.  It contains information and analysis that 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 of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.

Tuesday, July 24, 2018, 11:09 AM