Liontrust SF Absolute Growth Fund

Q4 2017 review

The Fund outperformed its peer group over Q4, registering returns of 3.8% against the IA Flexible Investment sector average of 3.6%*.

Our process targets businesses that can grow structurally, driven by the shift towards a global economy that is more efficient, provides a higher quality of life and is more resilient.

In terms of individual stock drivers, Kyudenko was the Fund’s top performer over the quarter. The Japanese company specialises in the outsourcing of electrical engineers and is benefiting from demand for contractors in infrastructure and large-scale renewable energy projects. This demand is supported by the need to rebuild Japan’s energy infrastructure system in the wake of the 2011 nuclear disaster, replacing nuclear capacity with safer and cleaner solar and wind.

Kyudenko has a strong competitive advantage, as it sources graduates from Kyushu University and trains them through its internal program, supplying labour into a market that remains in need of skilled contractors.

One of our better-performing consumer staple companies has been Irish-based Kerry Group. Kerry was established in 1972 as a dairy cooperative and has evolved to become one of the world's most advanced ingredients technology companies.

A recent area of research and development has been in functional ingredients, where Kerry is developing food fortification to target Sarcopenia (the degenerative loss of skeletal muscle mass) in aging populations. This research is conducted at the company’s newly established Innovation and Technology unit in Naas, Ireland. The company reported strong volume growth in its full year 2016 results, partly as a result of customer wins with the new Naas R&D centre.

Kerry’s share price was negatively impacted by the UK’s decision to leave the European Union, primarily due to foreign exchange concerns. We took this opportunity to increase our shareholding, believing the investment thesis remained intact and noting the strong underlying performance and geographic diversification. This decision proved valuable in 2017.

On the negative side, First Republic performed poorly over the quarter. Its Q3 earnings disappointed investors, as expense growth was higher than expected and margins fell over the period. Expense growth was due to long-term investment initiatives such as Gradifi, which despite short-term costs, should develop into long-term revenue streams for the banking business.

Gradifi allows skilled graduates to swap high interest student loans to First Republic loans, often at interest rates that are 50 to 60% cheaper. In return, First Republic is sourcing potentially attractive long-term customers in the early stage of their career and offering them a solution that helps to alleviate heavy student debt.

Margin pressure came from shifts in the yield curve over the quarter, which we feel is out of the management’s control and is also likely to reverse in the future. Overall, we feel the weakness is a buying opportunity for what remains a high-quality company.

DNB, one of the largest retail banks in Norway, was also a detractor over the quarter. The stock was down nearly 6% in local currency and this negative return was amplified by a devaluation of the Norwegian Krone. Until this point, DNB had performed strongly throughout 2017 and the company’s third-quarter results were ahead of consensus, with revenues ahead and loan losses lower than the market expected. Despite these results however, the shares went on to underperform the market for reasons that are unclear to us.

Our long-term thesis that DNB remains overcapitalised and should be able deliver a return on equity in excess of 12% has not changed and it remains a key holding across the Sustainable Future range.

After a strong year for equity markets and the Fund, we raised the cash level to 12% in December. We will continue to favour equities over cash until we see a global recession as imminent or a sharp increase in interest rates as necessary, neither of which we believe to be significant risks over 2018.

That said, we are cognisant of the fact a period of consolidation in the early part of 2018 remains a risk and therefore raised the cash level.

Discrete years' performance* (%)







Liontrust Sustainable Future Absolute Growth 2 Acc






IA Flexible Investment













*Source: Financial Express, primary share class, total return (net of fees and income reinvested, to 31.12.17

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. 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 Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.


This content 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, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, January 25, 2018, 4:15 PM