Liontrust Special Situations Fund

September 2019 review

The Liontrust Special Situations Fund returned 1.3%* in September. For comparison the FTSE All-Share Index returned 3.0%.

 

Monetary policy and trade wars continued to dominate attention on global equity markets and – without evidence of much of a catalyst – we observed a fairly sharp ‘value’ rally; the MSCI World Value Index returned 2.7% in sterling terms, versus the MSCI World Growth Index return of -0.7% and the MSCI World Quality Index return of 0.3%.

 

UK markets had to contend with additional uncertainties surrounding Brexit. Developments during September – such as the UK Supreme Court overruling PM Johnson’s attempt to prevent MPs from debating Brexit – gave the impression that chances of a ‘no deal’ had regressed. This fed through to markets, with trade weighted sterling rising 1.6% over the course of September. It also triggered a rally in domestically exposed, cyclical companies. This was reflected in the 9.1% total return in JPMorgan’s UK Brexit Hedge Basket, which comprises 35 London-listed stocks focused on the domestic economy.

 

This backdrop presented a relative performance headwind for the Fund. We are bottom-up stock pickers in the Economic Advantage team but our style does undeniably has certain ‘quality’ style hallmarks and typically have little exposure to UK consumer cyclical areas and a tilt away from value. This is a by-product of the investment process we employ rather than a goal in itself. Although precise definitions of quality vary from investor to investor, they all include the notion of companies that earn high returns – usually, high returns on capital or equity – as well as possessing strong balance sheets or solvency. This is a topic we have written about in the past.

 

Companies such as Unilever (-5.9%), Reckitt Benckiser (-0.9%) and Diageo (-4.9%) all sold off during the rotation. Diageo also published a trading statement confirming full year guidance of 4%-6% organic net sales growth. However, the beverage giant commented that it would be negatively impacted by significant changes to global trade policy and it is monitoring developments closely.

 

Smart Metering Systems (-11.2%) released interim results revealing it swung to a pre-tax loss. The gas and electricity smart meter installer cited temporary industry-wide technical issues, which were included in the £5.2m exceptional charge it booked for the period. The company said these installation issues have now been addressed and it is looking forward to the rollout of SMETS2 in the remainder of 2019 and early 2020.

 

StatPro Group (+49.3%) was the highlight among the Fund’s gainers. The company, which provides portfolio analysis and asset pricing services, agreed to an all cash offer from Confluence Technologies. The bid of 230p per share was pitched a 55% premium to StatPro’s share price prior to the announcement.

 

Following a June profit warning in which it warned about slow sales growth, Craneware (+40.1%) rebounded after full year results met its reduced guidance. The US healthcare-focused software provider provided a bright outlook saying that renewal levels have remained strong and sales momentum has moved higher since the start of the new financial year.

 

Positive contributors included:

Craneware (+40.1%), TP ICAP (+16.7%), TI Fluid Systems (+16.4%), Hargreaves Lansdown (+12.4%) and Aggreko (+9.7%).

 

Negative contributors included:

Next Fifteen Communications (-15.1%), Smart Metering Systems (-11.2%), YouGov (-8.1%), Kainos Group (-7.9%) and EMIS Group (-8.1%).

 

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

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust Special Situations I Inc

2.8

13.8

13.7

23.0

6.0

FTSE All Share

2.7

5.9

11.9

16.8

-2.3

IA UK All Companies

0.0

5.5

13.6

11.7

1.9

Quartile

2

1

2

1

2

 

*Source: Financial Express, as at 30.09.2019, 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 30.09.2019, 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.

Monday, October 21, 2019, 2:15 PM