Liontrust GF Special Situations Fund

November 2021 review

The Liontrust GF Special Situations Fund returned -2.8%* in November. The Fund’s comparator benchmark, the FTSE All-Share, returned -2.2%.

 

The FTSE All-Share was trading fairly flat for November and not far from 2021’s highs heading into the last few days of the month, but the identification of the Omicron variant of Covid-19 triggered a sharp drop. Until that point, the market narrative had largely remained centred on the inflationary forces generated by economic recovery from the last two years’ lockdown measures. However, the prospect of a fresh surge in the pandemic sent shares lower, particularly those exposed to any potential public health measures that restrict social contact and travel. Travel & Leisure (-18%) was, unsurprisingly, the weakest sector in the FTSE All-Share Index.

 

The Fund has relatively low exposure to the businesses that are most affected by such restrictions; the portfolio’s worst performing holdings in November predominantly reflected stock-specific setbacks. For example, TP ICAP (-18%) fell after the performance of its new Liquidnet unit disappointed investors. Q3 growth of 16% in its Energy & Commodities division was the highlight for the interdealer broker as it indicated a 3% year-on-year decline in revenues. Including revenues from the acquired Liquidnet business boosted total growth to 15%. Although TP ICAP says Liquidnet’s integration is going well, with cost synergies being realised ahead of expectations, revenues are now expected to be at the lower end of the £160m - £180m range previously given. Lower equity market volumes in October were blamed.

 

TI Fluid Systems (-17%) dropped on news of an institutional investor selling a large stake. Bain Capital sold 40 million shares in a placing at 250p, a 9% discount, taking its stake in the company down from 44% to 37%. Shares in TI Fluid Systems had proven resilient to a Q3 update earlier in the month that showed revenues fell heavily – down 15% but not by as much as the 20% drop in global light vehicle production volumes. TI Fluid Systems makes highly engineered automotive fluid systems. The car industry has been hit by microchip shortages and supply chain problems; TI Fluid Systems is cutting costs in light of the market disruption.

 

Among the stronger Fund holdings in November, Craneware (+13%) shares moved higher on an AGM statement that described trading during the first four months of its financial year as in line with management’s expectations. The statement also included an upbeat acquisition update. The integration process is ahead of schedule for Sentry Data Systems, the software-as-a-service pharmacy procurement provider purchased for $400m earlier this year. Operational departments are almost fully integrated, sales functions should be combined by the end of the financial year and all clients should be moved to the Trisus platform by the end of 2022. Initial cost synergies already more than fully offsetting the salary inflation seen in the sector.

 

An acquisition update also coincided with strength in JTC’s (+9.9%) shares. It completed the purchase of US fund administration specialist SALI – first announced in October – for an initial consideration of $205m.

 

A trading update from quality assurance provider Intertek Group (+9.1%) revealed robust sales growth and progression in margins. Between July and October, it grew revenues 6.7% year-on-year, while cost control and operational leverage have benefitted its profit margin. The company suggests that supply chain disruption and the growth of sustainable considerations are both trends which are likely to drive demand for its quality, safety and sustainability assurance services.

                                                       

Promising trends within its full-year results saw Sage Group (+8.6%) shares push higher. While reported revenue fell 3% to £1.85bn and operating profit dropped 8% to £373m, there were signs that the company’s strategic investments are paying off through higher recurring and cloud revenues. Annualised recurring revenue rose 8% to £1.68bn as its Sage Business Cloud product grew 19% to £997m. Subscriptions now account for 70% of revenues, up from 65% last year, while the customer renewal rate remains steady at 99%. The company has invested in accelerating the roll-out of Sage Business Cloud, pushing operating margins down 1.1 percentage points to 20.2%, but Sage expects this to recover in 2022.

 

While Dotdigital (-19%) full-year results delivered on the 23% revenue growth indicated in a July trading update, shares in the company de-rated as investors took stock following some very strong share price gains in the prior year.

 

Positive contributors included:

Impax Asset Management (+21%), YouGov (+14%), Craneware (+13%), JTC (+9.9%) and Intertek Group (+9.1%).

 

Negative contributors included:

Dotdigital Group (-19%), TP ICAP (-18%), TI Fluid Systems (-17%), Learning Technologies (-14%) and Hargreaves Lansdown (-13%).

 

 

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

 

Sep-21

Sep-20

Sep-19

Sep-18

Sep-17

Liontrust GF Special Situations C3 Inst Acc GBP

25.2%

-3.4%

3.1%

13.4%

12.6%

FTSE All Share

27.9%

-16.6%

2.7%

5.9%

11.9%

*Source: Financial Express, as at 30.11.2021, 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 30.09.2021, 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. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. 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.

 

Disclaimer

 

This information 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Tuesday, December 14, 2021, 3:04 PM