Liontrust Special Situations Fund

July 2018 review

The Liontrust Special Situations Fund returned 0.6%* in July, compared with the 1.3% return from the FTSE All-Share Index.

 

Equity markets were still captivated by trade war news. Trump acted on his promise to place tariffs on China which, as expected, announced retaliatory measures. However, relations with Europe were less strained; Trump met with Jean Claude Juncker, president of the European Commission, and agreed to not impose any further trade barriers.

 

In the UK, weak economic data – notably inflation numbers – sent trade-weighted sterling to its lowest levels of 2018 so far. UK CPI (consumer price index) grew 2.4% year-on-year in June, the same rate that was recorded in May but below analyst expectations for 2.6% growth.

 

A consequence of the weaker pound was that UK large cap stocks outperformed: the FTSE 100 Index returned 1.5% in July, compared to the FTSE 250’s return of 0.4% and the FTSE Small-Cap (ex-IT) Index’s -1.0%. This was a headwind to the Fund’s relative performance as it has a lower weighting to large caps compared to the FTSE All-Share.

 

Two of the Fund’s large cap stocks which did put in a strong performance were AstraZeneca (+11.7%) and Reckitt Benckiser (+8.9%) both of which have significant overseas earnings. Both companies also released interim results. Pharma giant Astra’s results were not particularly spectacular, as total revenue slipped 1% and operating profit fell 21%. However, the group maintained its expectations for its full-year results. Consumer goods company Reckitt raised its net revenue expectations for 2018 to 14%-15% growth from 13%-14% following a better than expected first-half performance from its Infant Formula and Child Nutrition division. Overall, the company posted a 30% increase in interim net revenue, at constant exchange rates, and a 29% increase in operating profit.

 

There were a number of portfolio holdings to release interim results and trading updates during July. The weakest was TP ICAP (-33.6%), which warned ahead of its interim results that Brexit, regulatory, legal and IT costs will mean earnings per share for 2018 are likely to be below the bottom end of expectations. Additionally, the company has struggled to integrate the voice broking ICAP business and now expects synergies from the deal to be £75m, down from £100m. TP ICAP also announced the departures of its chief executive and its chief financial officer.

 

dotDigital Group’s (+26.0%) pre-results update was better received. The marketing platform provider said group revenue for its 2018 financial year grew around 35% year-on-year and adjusted earnings before interest, taxes, depreciation and amortisation are expected to be in line with market expectations. The group also stated that strong momentum has continued into the new financial year and that it has seen no material impact from the implementation of GDPR.

 

Globaldata (+10.0%), Clipper Logistics (-21.1%) and Spectris (-11.3%) all released interim results. Data and analytics company Globaldata stated recent acquisitions boosted scale and revenue in the six months to end June. It also announced a 40% increase in deferred revenue, increasing visibility for the rest of the year.

 

Clipper Logistics’ interims looked solid on first glance. Revenue rose 18%, while operating profit increased 15% as it began contracts with a number of retailers including Marks & Spencer and ASOS. However, the company noted the wider economic climate is causing a headwind for its customers in the retail sector, bringing “an element of caution” to its growth plans. Precision instruments company Spectris maintained its full-year expectations, but noted that organic sales are expected to slow in the second half of the year due to tougher comparators.

 

The Fund sold its position in NEX Group as the group nears the completion of its takeover by US-based CME Group. We added positions in Accesso Technology Group, ECO Animal Health Group and Ideagen, all stocks which are already owned in the UK Smaller Companies Fund. Accesso Technology provides queuing and ticketing technology to the leisure and entertainment markets. ECO Animal Health is a producer of pharmaceutical products for the animal health market and Ideagen is a provider of governance, risk and compliance software.

 

Positive contributors included:

dotDigital Group (+26.0%), AstraZeneca (+11.7%), Globaldata (+10.0%), Reckitt Benckiser (+8.9%) and RWS Holdings (+7.7%).

 

Negative contributors included:

TP ICAP (-33.6%), Clipper Logistics (-21.1%), Smart Metering Systems (-19.3%), Spectris (-11.3%) and AA (-9.8%).

 

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

 

 

Jun-18

Jun-17

Jun-16

Jun-15

Jun-14

Liontrust Special Situations I Inc

15.3

23.0

6.9

8.9

12.0

FTSE All Share Index

9.0

18.1

2.2

2.6

13.1

IA UK All Companies

9.1

22.5

-4.1

7.0

14.0

Quartile

1

2

1

2

3

 

*Source: Financial Express, as at 31.07.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

 

**Source: Financial Express, as at 30.06.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.


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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. 

Monday, August 20, 2018, 10:50 AM