Liontrust Macro UK Growth Fund

July 2020 review

The Liontrust Macro UK Growth Fund returned -3.7%* in July. The FTSE All-Share Index comparator benchmark returned -3.6% and the average return of funds in the IA UK All Companies sector, also a comparator benchmark, was -2.2%.


Returns in July were focused at the individual stock level as Q2 earnings gave testimony to how well UK businesses were weathering the shock of Covid-19. The Fund’s experience offers a microcosm of this effect, with stock returns dictated by investors’ reaction to the incremental news contained in Q2 updates.


Chemicals business Johnson Matthey provides a representative example. Shares gained more than 6.7% as investors welcomed an AGM statement that reassured on trading at its key Clean Air division; revenues for June/ July (-20% year-on-year) were materially ahead of April’s coronavirus-impacted sales trough (-75% year-on-year) as auto production continued to recover. Further reason for optimism was found in news of fresh interest in Johnson Matthey’s battery cathode material offering and the reiteration of guidance on its eventual commercialisation. It seems clear that the market continues to undervalue the structural, politically mandated growth of Johnson Matthey’s Clean Air auto catalysis business, whilst attributing little chance of success to its battery cathode venture. We disagree and remain overweight.


Similarly, publisher Bloomsbury (+5.8%) published a thoroughly respectable AGM update. Headline sales rose 18% year-on-year, thanks to growth in both its Children’s Trade (+28%) and Adult Trade (+29%) divisions. Surprisingly, for a reporting period that covers the closure of UK retail, print sales grew by an impressive 9%; this achievement was attributed to the counter-cyclical nature of book sales. In combination with net cash of £35.5m and an untouched revolving credit facility, Bloomsbury’s impressive sales performance imparts enormous confidence and we remain happy holders.


Aerospace business BAE Systems (+1.4%) was another holding that outperformed on the strength of an impressive market update. Thanks to the strength of its US business, BAE issued a robust interim statement that exceeded consensus estimates across all metrics (earnings, dividends, free cash flow, net debt, order backlog). To our minds, however, the real highlight of this exceptional update, was the reinstatement of the April-deferred dividend. Not only did BAE restore its interim distribution (9.4p), it also pledged to make a second interim (13.2p) payment in lieu of April’s missed final dividend. In sum, BAE’s two interim payments offer income investors a near 4.5% return and recompense for any uncertainty regarding future policy. From our total return vantage, this is manna.


Whilst lacking for an equivalent July earnings catalyst, large-cap Direct Line rose more than 9%. Notwithstanding the sector’s several virtues (defensive earnings, attractive dividend policies, lower Covid-19 claims), it’s probable that Direct Line’s advance reflected August’s looming interims and the anticipated reversal of April’s dividend moratorium (since confirmed).


No doubt, sentiment towards UK auto insurers was buoyed by news that mid-cap holding Hastings (+8.1%) had received a preliminary approach from Finnish insurer Sampo. Although Hastings’ July gain looks muted given the circumstances, it fails to capture the fact that Sampo’s interest drove a 25% share price advance from the intramonth lows. Shortly after month-end, an offer of 250p was confirmed; we welcome the bid, which is in line with our estimate of Hastings’ intrinsic value.


Small-cap brick manufacturer Forterra (-23%) was the Fund’s worst performer, due to its £55m placing. It’s no surprise that the suddenness and severity of Covid-19 disruption has forced some UK businesses to buttress balance sheets and finance existing commitments with emergency cash raises. In this way, Forterra’s circumstances and the resultant share price reaction are typical. Whilst this means we have little visibility regarding near-term earnings, the UK’s structural undersupply of new build housing gives us confidence in Forterra’s medium-term prospects.


Full year earnings from packaging business DS Smith (-20%) testified to the reluctance of many UK businesses to recommence payments. Despite strong free cash flow and ample liquidity, DS Smith blamed “current economic uncertainty” for passing on its final dividend. For us, this speaks of the psychological scars inflicted by the sudden-stop Covid-19 recession and the inevitable preference of many corporates for the comfort of cash. As July’s share price fall makes clear, however, this does little for investor sentiment. The omission of the full-year dividend is regrettable, but we remain holders in anticipation of its eventual resumption.


Lastly, support services business Equiniti was another conspicuous victim of Coronavirus. Shares traded c.12% lower on an interim update that saw organic revenues decline 13% due to a number of factors: fewer corporate actions, lower interest rates, dividend cancellations and suspended employee dealing programmes. This is disappointing, if not entirely surprising given the backdrop of the half-year’s unprecedented disruption. Importantly, however, it is probable that revenues have bottomed and that subsequent updates will make for happier reading, thanks to the combined benefits of rising market levels and assorted self-help measures (cost savings, contract wins, etc.).


Macro-Theme Allocation (as at 31.07.20):

Liontrust Macro UK Growth Theme Allocation July 2020


Source: Liontrust


Macro-Theme Changes [1]:


Digital Economy

The position in Greggs was sold as its earnings recovery has been deferred by the effect of Covid-19 on both consumer behaviour and the accelerating trend for office workers to spend more time at home.


Infrastructure Spending

CLS Holdings, the office-focussed, commercial real estate business, was sold in light of Covid-19’s probable impact on working arrangements. The prospects for commercial property seem increasingly uncertain, with material risk to both rental yields and capital values.


Whilst the UK’s structural undersupply of new build housing persists and the long-term merits of housebuilders remain, Covid-19 will weigh on near-term volumes and earnings. This was the rationale behind our sale of Redrow.


New Oil Equilibrium

Royal Dutch Shell was sold. Its investment case is obscured by dividend cut, balance sheet vulnerabilities and the advent of renewable and clean energy alternatives.


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








Liontrust Macro UK Growth I Acc






FTSE All Share






IA UK All Companies













[1] The omission of a Macro-Theme expresses the absence of notable portfolio activity.


*Source: Financial Express, as at 31.07.20, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 30.06.20, 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. Investment in Funds managed by the Macro Thematic team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund’s expenses are charged to capital. This has the effect of increasing dividends while constraining capital appreciation. The performance of the Liontrust GF Macro Equity Income Fund may differ from the performance of the Liontrust Macro Equity Income Fund and is likely to 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, August 13, 2020, 2:12 PM