Liontrust GF Special Situations Fund

January 2019 review

The Liontrust GF Special Situations Fund returned 3.9% in January, compared with the 4.2% return from the FTSE All-Share Index.


Global equity markets bounced back from their fourth quarter travails, supported by hopes that US-China trade talks would yield results and signs that the pace of US monetary tightening may slow (or stall completely) in 2019. Minutes from December’s meeting of the US Federal Reserve’s rate-setting committee – during which it had raised rates by 25bps – suggested that it might be now “patient” on further policy firming. A subsequent late-January decision to keep rates on hold was then accompanied by further dovish commentary suggesting that interest rate rises have been put on hold due to muted inflation and risks to global growth.


In a reversal of December’s trend, the mid-cap section of the UK market outperformed – rising 7.1% to significantly outstrip the FTSE 100 return of 3.6%. A number of the Fund’s holding participated in this bounce without having issued any notable corporate updates: Weir Group (+16.0%), Spectris (+14.1%) and Rotork (+11.0%) for example.


There was plenty of newsflow to absorb from portfolio holdings in January however. Smart Metering Systems (+25.1%) was a stand-out among the portfolio’s risers in January. It announced details of a contract win with Octopus Energy for the supply of a minimum of 200,000 new SMETS2 meters. The contract forms part of a UK government requirement that all domestic energy suppliers fit their domestic and small business customers with smart meters by 2020. Shares in Smart Metering Systems had softened in the second half of 2018 on concerns that a shift to the next generation smart meter (SMETS2) would slow installations.  While a December trading update from the company flagged the possibility of operational challenges relating to the transition in the first half of 2019, this large order will assuage some of the concerns.


Shares in Savills (+17.7%) moved higher on a year-end trading update that referred to a robust fourth quarter. The company is on track to meet market expectations for the full year, with growth in revenues and underlying profits. Coming against a backdrop of market uncertainties and soft sentiment which weighed on Savills’ shares through 2018, this in-line statement was enough to prompt a relief rally in January. However, in its outlook comments, Savills warned that ‘prospects for 2019 are overshadowed by macro-economic and political uncertainties across the World’. While it states that the impact is difficult to quantify, Savills does anticipate lower transaction volumes in some markets – an effect it expects to offset by growing ‘less transactional’ business lines, such as property & facilities management.


Hargreaves Lansdown (-11.7%) is another business feeling the impact of weak investor sentiment. Shares in the company slid after disappointing net new business contributed to a decline in assets under administration. While trends in client numbers were fairly positive – total active clients rose 45,000 in six months to 1.14 million – their willingness to invest was less so. Net new business of £2.5bn in the six months to 31 December 2018 compares to £3.3bn a year earlier. Weaker-than-expected inflows combined with a drop in financial market levels saw Hargreaves’ total assets under administration contract to £85.9bn (down from £86.1bn a year ago, and £91.6bn on 30 June 2018). The company cited Brexit uncertainty as a primary factor in holding clients back from investing more. There are no signs of this uncertainty being resolved ahead of this tax year-end, a traditionally high volume period for Hargreaves, which makes for a very cautious short-term outlook for the business. Longer-term, we still believe the company’s excellent distribution network and high recurring revenues will allow it to compound earnings growth for its shareholders.


Domino’s Pizza Group (+13.6%) shares rebounded over January, despite losing some ground late in the month after issuing a Q4 trading statement. Group organic sales rose 5.8%, with 4.5% like-for-like expansion. In an increasingly familiar pattern, impressive ongoing growth in the UK and Ireland (6.2% organic sales growth) was undermined by a weak performance from its small international division. Domino’s had its busiest ever week in the run up to Christmas, selling 12 pizzas a second on the Friday 21 December, while the night of the Strictly Come Dancing final earlier in the month saw it set a new online orders record. However, the international operations suffered what the company described as ‘growing pains’, as it had difficulty integrating stores it had acquired in Norway.


Gamma Communications’ (+12.3%) recovery from late-2018 weakness was also aided by a trading update. It stated that 2018 EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to be at the “top of the range of market expectations” while revenue and earnings per share will be in-line with forecasts. The company, which provides voice, data and mobile communications to businesses, commented that both its direct and indirect channels experience good growth over the year.


Funds under management at Brooks Macdonald Group (+20.3%) fell 4.5% over the second half of 2018 despite net new business of £241m. However, the net new business figures – a 1.6% Q4 inflow and 3.6% for the half-year – were viewed by investors as representing decent underlying trends given a backdrop of weak investor sentiment.


Mortgage Advice Bureau (+18.1%) grew revenue by 13% to £123m in 2018, the result of a 12% increase in average adviser numbers (to 1,130) and a 1% uplift in average revenue per adviser. The company quoted research suggesting the new mortgage lending market will be flat in 2018 and 2019, but that growth opportunities should arise from the product transfer market, where mortgage lenders utilise intermediaries to retain existing mortgages.


Market research and data analytics group YouGov (+12.0%) has a 31 January year-end; on the last day of the month it was able to state that trading during the year had exceeded its expectations. This performance was driven by organic growth in its Data Products & Services division.


Ideagen (+14.6%), the risk management software provider, released interims results for the half-year to 31 October showing a 22% revenue increase to £21m. Within this, recurring revenues rose 30% and now represent 67%, almost at the 70% level at which we would consider them to represent a core intangible asset for the business (we currently own the stock for its intellectual property and distribution characteristics). Although only re-affirming that trading is in-line with market expectations, outlook comments from the company took on a distinctly bullish tone.


Fund holdings residing in some of the more defensive areas of the market experienced negative returns as investors rediscovered some risk appetite. AstraZeneca (-5.8%) and GlaxoSmithKline (-0.9%) both ended in negative territory. AstraZeneca announced a business re-organisation that will see separate R&D and commercial units created for each of its main divisions– biopharmaceuticals and oncology – while Glaxo completed the US$5.1bn acquisition of oncology specialist TESARO, a deal first announced in December.


Consumer staples businesses Unilever (-3.0%) and Reckitt Benckiser (-2.5%) also lost ground. Reckitt announced that its CEO of eight years, Rakesh Kapoor, will retire before the end of the year. Unilever released 2018 results which, given their in-line nature and 31 January release date, look to be less a factor in share price weakness than sector rotation. As expected, Unilever’s 2.9% underlying sales growth was diluted by an adverse currency impact of 6.7%. While stating that it remains on track for its 2020 targets, Unilever did comment that challenging market conditions in 2019 may again hold underlying sales growth to the lower half of its medium-term 3-5% objective.


Digital marketing specialist Next Fifteen Communications (-3.7%) completed the acquisition of Planning-Inc, a predictive analytics and data marketing business, for an initial consideration of £6.3m which could rise to £15m if earn-out conditions are met. The deal is expected to be earnings enhancing this financial year (ending 31 January 2020). Next Fifteen Communications also stated that results for the year to 31 January 2019 are expected to be in-line with guidance.


Positive contributors included:

Smart Metering Systems (+25.1%), Savills (+17.7%), Weir Group (+16.0%), Craneware (+15.3%) and Spectris (+14.1%).


Negative contributors included:

Hargreaves Lansdown (-11.7%), AstraZeneca (-5.8%), Aggreko (-5.4%), Next Fifteen Communications (-3.7%) and Unilever (-3.0%).


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








Liontrust GF Special Situations C3 Inst Acc GBP






FTSE All Share Index







*Source: Financial Express, as at 31.01.2019, total return (net of fees and income reinvested), sterling terms, C3 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), 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.




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, February 22, 2019, 2:44 PM