Liontrust UK Growth Fund

September 2019 review

The Liontrust UK Growth Fund returned 0.8%* 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.

 

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.

 

Royal Dutch Shell (+5.8%) and BP (+4.4%) both received a boost from a brief spike in oil prices. This followed an attack on Saudi Arabian oil facilities, which saw oil prices surge by almost 20%. This rise was short-lived as Saudi authorities quickly reassured the market that output would return to normal in a matter of weeks.

 

AIM-listed wealth manager Brooks Macdonald (+8.4%) provided upbeat full-year results with assets under management growing 6.8% in the 12 months to end-June. This growth was driven by a combination of net new business, which rose 3.3%, and a robust investment performance. The company expressed caution about the current economic environment, particularly surrounding Brexit, but maintained its confidence in the strength of its balance sheet and investment positioning.

 

The outlook was less positive for education publisher Pearson (-11.2%) which warned that ongoing weakness in its US Higher Education Courseware segment meant that adjusted profit for the year is expected to be at the lower end of its £590m-£640m guidance range. The company’s US higher education business has weighed on performance for some time due to lower enrolment numbers and preference of open educational resources. These problems were exacerbated by a higher-than-anticipated rate of students turning away from print materials, loss of market share, delivery issues and sales force re-organisation. Management said that these problems are short term and they are working on utilising its new technology platform.

 

Positive contributors included:

StatPro Group (+49.3%), TP ICAP (+16.7%), TI Fluid Systems (+16.4%), Hargreaves Lansdown (+12.4%) and Wm Morrison Supermarkets (+11.9%).

 

Negative contributors included:

Indivior (-19.6%), Next Fifteen Communications (-15.1%), Pearson (-11.2%), Ultra Electronics (-7.2%) and EMIS Group (-7.1%).

 

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

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust UK Growth I Inc

3.0

9.4

11.5

25.7

1.6

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

3

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.


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, 2:25 PM