Liontrust GF UK Growth Fund

August 2020 review

The Liontrust GF UK Growth Fund returned 0.8%* in August. The Fund’s comparator benchmark, the FTSE All-Share, returned 2.4%.


ONS data statistically confirmed what was already common knowledge: the UK has suffered its largest recession on record. Q2’s 20% contraction added to the 2.2% decline in Q1 to meet the technical parameters of a recession, i.e. two or more consecutive quarters of negative growth. The Bank of England is now forecasting the economy to shrink by 9.5% in 2020, less than its prior forecast of a 14% contraction. Counteracting this forecast of a shallower fall is a prediction of a slower recovery in 2021 and 2022 – of 9% and 3.5% respectively rather than 15% and 3%. However, economic forecasting is notoriously tricky, let alone under such unique circumstances, and the Bank’s underlying assumptions of no second wave of coronavirus and a smooth transition to an EU trade agreement by the start of 2021 shows how hard it is to attach much value to such estimates.


After July’s dip, the UK stockmarket resumed its recovery from the coronavirus crisis sell-off. In the US, the recovery seems complete for the S&P 500 and Nasdaq Composite indices, with both touching new all-time highs during the month. 


Some holdings issued financial reports showing large drops in revenues and/or profits during August. But in most cases, this is the second or third time they’ve updated on the impact of the pandemic and, as with the UK economic figures, the bad news has already been absorbed by investors (and share prices where necessary).


This explains why WH Smith (+25%) was able to make ground on a statement which detailed the heavy toll of Covid-19 on the business and the consequent restructuring measures planned. Due to lower high street footfall and reduced traveller numbers, it is reviewing its stores in both its High Street and Travel divisions with around 1,500 jobs at risk as a consequence. The cost of the restructuring, including redundancy pay-outs, is estimated to be between £15m and £19m. For the year ending 31 August, WH Smith expects a loss before tax of £70m - £75m. Its current monthly cash burn is between £15m and £20m, but WH Smith is confident it has funds to operate through a prolonged downturn: it has cash of over £60m, a revolving credit facility of £200m and an additional committed bank facility of £120m. In addition, it is eligible for the Covid Corporate Financing Facility ('CCFF'). 


Similarly, temporary power provider Aggreko (+24%) rallied after a trading statement showed a 12% drop in underlying revenues in the first half of 2020.  While it made an adjusted operating profit of £64m, down only 21% on last year’s level, this was wiped out by an £181m exceptional charge. This charge was taken following a review of asset values and outstanding customer bills in light of the Covid-19 impact and the acceleration in energy transition to lower carbon technologies (two of its key markets are oil & gas and petrochemical & refining). However, the company signalled its confidence in its near-term prospects by announcing an interim dividend for 2020 [the 2019 payment was cancelled in the midst of the coronavirus crisis] and providing full-year guidance on adjusted operating profit of £80m to £100m.


Having released a detailed Q2 trading update in July, PageGroup’s (+10.1%) interims results included few surprises. Its shares were therefore able to rise in August despite reporting a 19% year-on-year drop in revenues to £655m while swinging to a £1m pre-tax loss from £76m profit last year. Its dividend policy has been suspended and it is still unable to provide financial guidance for future periods. It has responded to these tough market conditions by cutting headcount by 9% and reducing its overall cost base by 21% in Q2. However, the most recent quarter offered some signs of encouragement, with PageGroup commenting that it has seen improvement in activity levels and forward-looking indicators across several of its markets.


The gain for digital marketing specialist Next Fifteen Communications (+27%) was more intuitive. It commented that trading in the first half of the year was “well ahead” of the expectations it outlined in a March update, meaning that full-year results are on track to materially exceed market forecasts. While revenues fell 6% on an organic basis, they were up 6.5% to £126m overall, resulting in a 16% increase in adjusted operating profit to over £20m.


In May, interdealer broker TP ICAP (-8.3%) revealed that revenue growth had been boosted by higher trading volumes as a result of volatile market conditions caused by Covid-19. Its interim results for the six months to 30 June confirmed a 7% increase in revenue but outlook comments warned that July’s trading activity has slowed to materially below the 2019 level. It has therefore not upgraded its full-year guidance of low single-digit revenue growth.


As expected, interim sales were down heavily at TI Fluid Systems (-9.4%), with the decline deepening from 16% in Q1 to 30% for the first half of the year. Despite this substantial drop in revenues, TI Fluid was able to achieve a positive adjusted operating profit margin of 2.3%, down from 10% a year earlier. The company manufactures highly engineered automotive fluid storage, carrying and delivery systems. Light vehicle production has fallen by about 40% in Europe and North America as a result of Covid-19. Due to consumer auto demand remaining highly uncertain, TI Fluid states that it is still unable to provide financial guidance for the full year.


Shares in Hargreaves Lansdown (-7.6%) rallied in May after it announced resilient trends in new business levels during the crisis. They lost some of these gains in August on the publication of full-year numbers which showed both net new business flows and assets under administration rising by 5% to £7.7bn and £104bn respectively.


Indivior (-14%) shares also moved lower, retracing some of the 66% gain made in July on news of an agreement with the US Department of Justice regarding the marketing of its Suboxone film.


Positive contributors included:

John Wood Group (+30%), Next Fifteen Communications (+27%), WH Smith (+25%), Aggreko (+24%) and Compass Group (+16%).


Negative contributors included:

Indivior (-14%), TI Fluid Systems (-9.4%), Diageo (-9.0%), TP ICAP (-8.3%) and Hargreaves Lansdown (-7.6%).


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








Liontrust GF UK Growth C3 Inst Acc GBP






FTSE All Share







*Source: Financial Express, as at 31.08.2020, 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 30.06.2020, total return (net of fees and income reinvested), primary class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.


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.


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.

Thursday, September 17, 2020, 3:18 PM