Liontrust SF UK Growth Fund

Q4 2020 review

The Fund returned 15.9% over the quarter, outperforming the IA UK All Companies sector average of 15.3% and 10.6% from the MSCI UK Index (both of which are comparator benchmarks)*.


In terms of macro developments, positive news on effective vaccines in November drove a strong recovery in markets after a weaker October. This optimism was further buoyed by Joe Biden’s victory in the US Presidential election and we also saw an end to more than four years of Brexit negotiations, with the UK and EU unveiling a deal on Christmas Eve that should help markets start 2021 on firmer footing and allow companies to plan ahead.

While concerns about Covid-19 remain, with lockdown reintroduced amid worries about the virus mutating, broader market performance continued to the end of the year on the back of expectations of a better 2021. We welcome the recovery in many of our more cyclical names but avoid trying to predict how the macro picture will develop, focusing on backing companies benefiting from the structural shift towards a more sustainable economy and generating high returns. Covid-19 does not change our view that companies exposed to sustainable themes will see strong growth and many of these areas will continue to accelerate as the world recovers.

Solid oxide fuel cell developer Ceres Power was our strongest performer over the quarter, with the company continuing to benefit from its aim to become the ARM of energy (a business strategy of licensing its technology to manufacturing partners), signing a strategic collaboration deal with powertrain engineering consultancy AVL in December. Ceresfuel cell technology is expected to play a big role in the decarbonisation of the global economy and clean-up of urban air. The company was able to post strong 12-month results to end June, highlighting growing global demand for clean energy technologies.

Success of new technologies, however promising, is never guaranteed, but the roster of global partners is building confidence in the Ceres offering. Bosch has now installed prototype products of its 10kW system using Ceres' technology at five locations in Germany and, despite an initial delay due to the pandemic, there has also been progress with transportation applications for Weichai in China.

Other top names over Q4 included several of our financial holdings, linked to the themes of Insuring a sustainable future and Increasing financial resilience, as the sector enjoyed a strong end to 2020, including Legal & General and Paragon Banking Group. Showcasing the kind of financials we tend to own, Paragon Banking Group provides long-term mortgages to professional landlords, supporting the growing provision of homes for rent in the UK. It announced solid results for the year to 30 September, highlighting strong capital and liquidity, an increasingly diversified business and growing momentum in new lending activities. Covid has clearly impacted the business, with underlying profit down from £164 million in 2019 to £120 million, but CEO Nigel Terrington one of the longest serving chief executives in our portfolio, having started in 1995 noted a transformational year in its retail deposit division. It has broadened its product range and distribution, with balances increasing by 22.9%, at a lower cost, providing reliable, scalable and cost-effective funding.

Continuing on the theme of housing provision, Countryside Properties also reported strong results as demand for affordable housing, houses for rent and owner-occupied, all continue to grow. Countryside is distinctive among housebuilders in focusing equally on these three types and in developing communities. It is well known that there is a severe shortage of quality housing in the UK and we feel the Countryside model helps to fill this shortfall. The company is 70% forward sold for 2021 and provided there is no material change in market conditions, on track to deliver at the upper end of consensus operating profit expectations for 2021.

Elsewhere Learning Technologies Group, benefiting from our Providing education theme, was another strong holding in Q4, with the company announcing revenue performance in line with expectations for the first half of 2020 at the end of September, up 2.3%. As a digital learning business, the company has benefited from the lockdown environment and the market has welcomed LTG’s triple acquisitions in the Moodle-based learning management systems (LMS) over the course of 2020. The acquisition of Open LMS in March was the first step in plans to become the global leader in commercial Moodle services, with further deals for eCreators in September and eThink Education in December. Via simple online tools, Moodle allows users to create, personalise and tracking learning and examinations programs and Open LMS proved a key player when many universities had to implement digital learning.

Elsewhere, our best-performing holdings included consumer-facing names such Trainline and Compass Group, rewarding our recent adds to many of these bruised companies in the third quarter as we begin to see a resolution to the pandemic over the coming months. Looking at Trainline, the company had been struggling, as would be expected for a travel business during a period of lockdown. Our thesis is that growth will return for this highly profitable business with an undemanding valuation, with safe, efficient mass transport in the UK and Europe the only way to reduce congestion and emissions in our cities.


Shares in the company have been volatile, falling from 540p in February to a low of 210p in March, before rising back to around 530p by the end of May and dropping to 260p in October. We took a long-term perspective on the company, our thesis and the valuation, and added to the stock on weakness. Three doses of positive vaccine news have allowed investors to recalibrate their expectations for many companies with a return to some kind of normality in sight, and Trainline has been among the largest beneficiaries with share price growth of more than 60% over November.

Continuing the travel theme, National Express shares also enjoyed a strong recovery over the quarter and we believe growth may accelerate for the company in the coming five years, driven by increased outsourcing and failing competitors in the wake of Covid-19. As stated, the environmental advantages of public transport are an important factor in reducing emissions, which, along with urbanisation, should drive growth in the longer term.

A number of our healthcare names also contributed to returns in Q4, with Abcam continuing to benefit from a re-rating given the recent focus on life sciences, and Oxford BioMedica from its link up with AstraZeneca as the rollout of their vaccine begins in the UK. As we have said before, while the vaccine rightly grabs the headlines, the investment case for this business is primarily built on the other conditions its technology can treat, varying from lymphoma to Parkinson’s.


Among the weaker performers in Q4, testing and assurance stock Intertek saw its share price hit after announcing a 7.3% decline in revenues over the first ten months of 2020 compared to the previous year, although conditions improved slightly in Q3. The company ensures the quality of goods and manufacturing supply chains, including environmental and employee performance. Intertek said it continued to support clients to resume operations amid easing lockdown restrictions (although this situation has obviously now reversed in the UK), and has seen a strong revenue rebound in its Products and Trade divisions, which represent 93% of earnings, although conditions remain challenging in the Resources sector.

Reinforcing our thesis on the company, CEO André Lacroix said the pandemic has made the case for Total Quality Assurance clearer and stronger, with structural growth drivers in this area now including a wide range of new opportunities, including more outsourcing. This also echoes our stance on a cleaner, healthier and safer future, with Intertek highlighting growth opportunities in three similar sleeves: more diversified supply chains with greater traceability, improved intelligence and increased resilience; a lower carbon economy, stay‐local lifestyles, more remote working, distance learning and online shopping; and better personal safety, higher health, hygiene and wellbeing standards and greater investment in healthcare.

Elsewhere, Kingspan shares fell over the quarter, with the company part of the Inquiry into the Grenfell Tower tragedy. Like everyone else, we must await the conclusions and recommendations of the Inquiry before we can fully determine the impact on the company’s future, but we recognise failings in the governance of fire specifications on its insulation products. A core part of the Liontrust Sustainable Investment team’s process has been direct engagement, which we use to challenge companies, encouraging and pushing them to implement better business practices. Given this approach, we began questioning Kingspan the day after the Grenfell tragedy in June 2017. The team have continued engaging with Kingspan about Grenfell Tower in particular and the fire resistance of the company’s products more generally.

Over Q4, we had reduced our position, prior to the Inquiry revelations, reflecting the high valuation its shares had obtained. The reasons we have invested in Kingspan for 15 years and continue to do so is because of the company’s positive impact on energy use and its leading approach to carbon reduction and the circular use of materials. Notwithstanding this, we will engage with Kingspan about any findings of concern to the company.

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







Liontrust Sustainable Future UK Growth 2 Acc












IA UK All Companies













*Source: Financial Express, as at 31.12.20, 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, January 20, 2021, 3:59 PM