Liontrust SF UK Growth Fund

Q1 2019 review

The Fund returned 10.0% over the quarter, outperforming both the IA UK All Companies sector average of 9.0% and 9.4% from the MSCI UK Index*.


Equities bounced back strongly over the period as markets climbed the proverbial “wall of worry”, recovering from the volatile sell off that marked the end of last year.

We entered 2019 with two key risks at play, which had rocked markets over the last quarter of 2018. The first related to interest rates and risk of a policy error; the second centred on politics, with concerns focused on a US-led trade war with China and a calamitous “no-deal” Brexit in the UK. Both have subsided over the quarter, and with the risk of a recession still small, markets rallied as a result.

Negotiations between Presidents Trump and Xi, aiming to find a compromise on trade, appear to be heading in the right direction. With China slowing in the last few months and economic momentum in the US also facing hurdles, both parties are incentivised to find a solution and Trump is clearly concerned a recession could damage his re-election prospects in 2020.

China’s economy is heavily dependent upon its export sector and has slowed materially since the US imposed tariffs. While the Chinese are unlikely to open their economy fully to US imports, there remain areas in which they could appease America and still continue to pursue their agenda in terms of moving up the technology curve in key sectors.

As for the UK, while the political soap opera surrounding withdrawal from the EU rolls on, the risk of a hard Brexit has receded. The situation remains fluid and difficult to predict but a soft, or semi-soft, Brexit is the likely outcome, which should be supportive for the European economy.

Meanwhile, the risk of policy error by central banks has also receded. The US Federal Reserve has scaled back its expectations for further rate rises over 2019, citing a weaker economy. Likewise in Europe and China, we have seen the risk of tightening monetary policy shift swiftly to expectations of loosening and in the absence of global recession, this has translated into stronger equity markets.

As ever, we follow economics and politics with interest but continue to focus on our core competence that we believe has enabled us to deliver outperformance: to identify businesses exposed to strong sustainability trends that will endure and grow their value per share regardless of the economic backdrop. 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.

GW Pharmaceuticals was the best-performing stock in Q1 in the wake of the group’s November launch of its Epidiolex product. After selling off in the final quarter of 2018, GW shares increased 69% during the first three months of 2019.


Last year was really its first as a commercial company as Epidiolex – a prescription medicine used to treat seizures – has now successfully launched in the US and demand has surpassed expectations. This is a significant step forward in the treatment of intractable forms of childhood epilepsy and became the first cannabis-based drug approved by the Food and Drug Administration (FDA), placing GW firmly under our Enabling Innovation in healthcare theme.


Elsewhere, Softcat was once again among our strongest performers, with the value-added software reseller’s shares recovering from a weak fourth quarter. The company continues to take market share and regardless of the macroeconomic environment, small and medium-sized businesses are investing in IT security, GDPR compliance, and efficiency-driving software.

The company’s six-month results were excellent, with customer growth accelerating, driving a 21% rise in revenues year over year. Our long-term thesis on Softcat remains in place, namely that a relentless focus on customer and employee satisfaction results in a distinctive organisational culture that will continue to drive strong sales and profitable growth.

Another top-performer rebounding strongly from the Q4 selloff was Worldpay, which announced strong results in February: organic sales accelerated to 10% in the final quarter, leading to the adjusted earnings per share increasing 15% year over year. In March, Fidelity National Information Services (FIS) announced it was acquiring Worldpay at a 13% premium to the pre-close price and a 21% premium to the 30-day moving average. The deal is funded by a mix of cash and shares and so is described as a merger.

A lot has happened in the three-and-a-half years since Worldpay has listed and we thought a brief overview may be useful. We participated in the IPO that valued Worldpay at £6.3bn in October 2015 and by August 2017, Vantiv had agreed to acquire the company at a valuation of £8bn. The combined entity kept the UK listing so we retained our stake and the most recent acquisition by FIS values the company at around £27bn ($35.5bn).

Among other strong contributors, Dairy Crest was the latest name to exit our portfolio as a result of being acquired. The company’s brands include Cathedral City cheese and Country Life butter and we first invested nearly three years ago as we felt the way it treated the UK-focused supply chain offered a competitive advantage with respect to both brand reputation and product quality.

The Canadian-based Saputo, one of the largest dairy companies in the world, offered £6.20 per share, representing a premium of 12% over the pre-close price and a 33.8% premium over the average price over the previous 90 days.

Over the quarter, we participated in an equity placing for GB Group, which provides identity intelligence solutions and reduces fraud in our increasingly digital economy. GB Group had identified a rare and attractively valued US business called IDology and in line with its usual strategy, financed the deal partly through cash and partly through shares. The placing was priced at £4.10 and we effectively increased our position by 25% by participating. At the time of writing, the shares have risen to £6.31 so this has so far proved a good investment for our clients.

Among the weaker names, Sophos shares have remained subdued after a mixed statement early in the period: while the group swung back to profitability in the third quarter as sales improved, it also warned of a decline in billings.

While we still believe this data protection business has a great product, we fear the competition has become fiercer so our confidence in the company returning to growth has fallen. As such, we have reduced the position and will be following it closely.

CVS, the biggest veterinary services company in the UK, was another poor performer over the quarter. Our investment thesis was based on the business consolidating the fragmented veterinary market, with CVS improving the operational efficiency of acquired practices and increasing margins with economies of scale and better systems.

However, the cost of vets and locums has dramatically increased due to a supply/demand imbalance in the profession, with many experienced vets leaving the industry. This wage inflation, coupled with rising medicine costs, has had a dramatic impact on practice profitability. Furthermore, CVS decided to reduce its planned expansion due to increasing multiples, making the returns much less attractive. The original investment story has changed markedly with the fundamentals deteriorating so we decided to exit the position.

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







Liontrust Sustainable Future UK Growth 2 Acc












IA UK All Companies













*Source: Financial Express, as at 31.03.19, primary share class, total return, net of fees and income reinvested.

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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.




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.

Wednesday, April 24, 2019, 3:18 PM