Liontrust Special Situations Fund

February 2019 review

The Liontrust Special Situations Fund returned 1.6%* in February compared with the 2.3% return from the FTSE All-Share Index.

 

The UK stockmarket continued its rebound in February. Investors were enthused by the US Federal Reserve’s dovish turn in January and this month were helped by positive developments in geopolitical tensions between the US and China. As the two countries were nearing the end of the 90 day truce against new tariffs, Donald Trump tweeted that tariffs on US$200bn worth of goods will be postponed as the pair engaged in trade negotiations.

 

The Brexit process edged closer to the March 29 deadline without a clear outcome in sight. Prime Minster Theresa May announced a series of UK parliamentary votes on the exit process, including one on a no deal and a separate one on delaying Brexit. The market took this as an indicator that a no deal Brexit has become less likely and resulted in a sharp rise in the pound.

 

For the Fund, most of the focus was on fourth quarter and 2018 earnings updates. This was behind the share price rises of Kainos Group (+17.1%), AstraZeneca (+13.6%) and Weir Group (+9.0%).

 

It was unfortunately Accesso Technology Group (-41.0%) which had the most pronounced share price move in February. The company’s “broadly” in line trading update was interpreted as a minor downgrade and sent shares lower. The queuing and ticketing technology company also indicated that it would be reviewing its investment spending priorities in light of the opportunities available to it, but did not clarify any details over whether this would mean a simple reallocation of spend, or a material decrease/increase in spending. The market naturally speculated that if it was the latter, this could lead to earnings downgrades. Mixed in with this was the news that that executive chairman Tom Burnet, who has been the face of the company for many years, would be stepping down.

 

In the current market environment, the last thing that investors want is uncertainty – which is exactly what this announcement threw up. Hopefully some clarity released at the time of the full year results in the spring could allow the shares to bounce off these low levels.

 

There was more positive news from digital platform provider Kainos, which issued a short statement indicating that full-year results for the year ending 31 March are anticipated to be ahead of current market expectations, driven by strong demand for its Digital Transformation and Workday Services divisions.

 

Drugs giant AstraZeneca and support services engineer Weir Group both published strong full-year results. Astra’s fourth quarter revenue rose 11%, with a particularly strong showing from its Oncology division. In addition, the company pleased the market with its forecast of high single-digit growth in product sales in 2019 and noted its lung cancer drug Tagrisso is set to be its biggest selling treatment as the group transitions its focus towards cancer treatment.   

 

Weir Group’s 2018 results trumped the market’s expectations, with adjusted operating profit rising 18% from 2017 to £348m, compared to the consensus forecast of £339m. Cost synergies from the group’s acquisition of ESCO in July were running ahead of the company’s expectations and helped boost operating margins.  

 

Next Fifteen Communications (+20.6) continued to feel the benefit from its late January statement, in which it said full-year results are set to be in line with expectations, and organic growth was indicated to be above the sector average. Renishaw (-9.2%), meanwhile, gave back the gains made after its January trading update. The metrology specialist reported a rise in interim revenue, with growth in all regions except the Far East. Domino’s Pizza Group (-11.8%) also reacted to a late January statement, in which it reported ongoing growth in UK and Ireland, though its international operations suffered ‘growing pains’.  

 

Positive contributors included:

Next Fifteen Communications (+20.6%), Kainos Group (+17.1%), AstraZeneca (+13.6%), Weir Group (+9.0%) and Sage Group (+7.4%).

 

Negative contributors included:

Accesso Technology Group (-41.0%), Domino’s Pizza Group (-11.8%), Renishaw (-9.2%), Ideagen (-8.1%) and Craneware (-6.6%).

 

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

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Liontrust Special Situations I Inc

-2.1

16.8

15.8

13.9

1.9

FTSE All Share Index

-9.5

13.1

16.8

1.0

1.2

IA UK All Companies

-11.2

14.0

10.8

4.9

0.6

Quartile

1

1

1

1

2

 

*Source: Financial Express, as at 28.02.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.


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, March 15, 2019, 10:47 AM