Liontrust Special Situations Fund

April 2019 review

The Liontrust Special Situations Fund returned 5.6%* in April compared with the 2.7% return from the FTSE All-Share Index.


Equity markets were buoyant, helped by indications that a breakthrough in US-China trade talk might be imminent. There has also been growing talk of ‘Goldilocks’ conditions for stockmarkets: where US macro conditions improve, but not by enough to threaten the Fed’s patient approach to any further policy tightening. UK indices were also aided by the successful postponement of the Brexit deadline from 12 April to 31 October.


A ‘risk-on’ trade saw equities rally, with the greatest gains coming further down the market cap scale. The FTSE 250 ex-IT and FTSE Small Cap ex-IT indices rose 4.4% and 4.5% respectively, outstripping the FTSE100’s 2.3% performance. In this respect, the market’s return profile presented a tailwind to the Fund’s relative performance given its higher exposure to mid and small cap companies when compared with the FTSE All-Share.


While March saw ‘defensive growth’ companies feature prominently in the Fund, April’s stand-out performers were also typically more cyclical. The Fund’s large allocation to the industrials segment of the market was a significant positive as it led the FTSE All-Share sector breakdown with a 7.5% return. We have found substantial Economic Advantage among the engineers and support services groups which are housed within the industrials sector. RWS Holdings (+25.3%), Renishaw (+21.8%), Paypoint (+17.4%), Spirax-Sarco Engineering (+15.7%), PageGroup (+14.5%), Rotork (+11.6%), Aggreko (+10.7%) and Intertek (+10.2%) all notched up double-digit returns for the month.


A selection of these stocks also issued investor updates. A half-year trading statement from RWS Holdings indicated that adjusted profit before tax for the period to 31 March 2019 will be at least £35.5m, a 24% year-on-year increase and ahead of consensus expectations. Overall revenue growth amounted to 10% on an underlying like-for-like basis, boosted by a strong performance from the recently acquired Moravia business. RWS is a provider of intellectual property support services such as translation and localisation.


PageGroup, the recruitment company, generated an 11.7% rise in constant currency gross profit in the first quarter of 2019, as international operations compensated for uninspiring UK growth of 1.7%. Asia Pacific gross profit expanded by 16%, EMEA rose 10% and the Americas grew by 22%. While the UK performance continued to be constrained by “Brexit related uncertainty impacting candidate and client confidence”, the US registered a record quarter following 24% growth. PageGroup expects to deliver 2019 operating profits which are in-line with current consensus expectations of £160m.


In its Q1 update, Rotork referred to a gradual improvement in activity levels compared with the fourth quarter of 2018, which leaves it on course for modest sales growth over 2019.


Staying in the Fund’s industrials sector holdings, a notable outlier was the AA (-18.5%). It slid on the release of a full year trading update despite maintaining earnings guidance for the period to 31 January 2019. On the same day as the trading statement, the AA announced that it had won a contract with Admiral to provide roadside assistance to its 4.3 million motor insurance customers. The company is in a midst of a strategic refocus, a task which is unlikely to be helped by the unexpected resignation of its CFO at the end of the month, which saw the shares take another leg lower.


Smart Metering Systems’ (-8.8%) 2018 revenue rose 24% to £99m, with annualised recurring revenues amounting to £75m (a 32% increase), comfortably above the 70% level at which we consider a company’s repeat business may represent a barrier to competition. Total gas and electricity metering and data assets rose by 1.1 million to 3.1 million at the end of 2018. Shares in the company gave up some ground in 2018 on worries that a shift to the next generation of smart meters (from SEMTS1 to SMETS2) would slow installations. A December 2018 trading update confirmed that the company shared this concern, and 2018 full-year results released in April gave further details. Installation run rates dipped in the second half of 2018 but the company said it expects installation rates to accelerate into the second half of 2019. It has also written down the value of its first generation meter portfolio. This charge, together with increased investment to its supply chain to handle second generation meters, led to a large drop in the company’s profitability during 2018.


The transition in smart meter technology standards was an unexpected obstacle that has potentially set back Smart Metering Systems’ growth plans by a year or two. Nevertheless, powerful regulatory drivers continue to underpin the company’s prospects and the fund managers believe that the delay in achieving this growth has already been discounted in the shares. 


Following a strong Q1 run, shares in YouGov (-5.8%) saw some profit-taking following interim results. In the six months to 31 January the company grew adjusted operating profit by 41% to £12.5m after revenue rose 18% to £66.5m. YouGov now generates over half of sales from its high margin Data Products and Services division. The company announced new five year strategic targets to double revenue and adjusted operating profit margin and to grow adjusted earnings per share at an average of more than 30% a year.


Positive contributors included:

RWS Holdings (+25.3%), Renishaw (+21.8%), Hargreaves Lansdown (+21.1%), Spirax-Sarco Engineering (+15.7%) and PageGroup (+14.5%)


Negative contributors included:

AA (-18.5%), Smart Metering Systems (-8.8%), Eco Animal Health Group (-6.8%), AstraZeneca (-6.7%) and YouGov (-5.8%).

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








Liontrust Special Situations I Inc






FTSE All Share Index






IA UK All Companies













*Source: Financial Express, as at 30.04.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 31.03.2019, 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. 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.

Friday, May 17, 2019, 11:41 AM