Liontrust Special Situations Fund

August 2019 review

The Liontrust Special Situations Fund returned -3.8%* in August. For comparison the FTSE All-Share Index returned -3.6%.


Investor sentiment soured in August as trade hostilities between the US and China escalated once again. Donald Trump stated, in a series of tweets, that tariffs would be placed on an additional US$300bn worth of Chinese imports from 1 September. He later announced that this tariff rate would be raised to 15% from 10%, but carved out a list of goods for which implementation would be delayed until December. 


Equity markets dropped as investors fled to traditional safe havens such as government bonds and gold. This flow of funds caused an inversion in the US yield curve with the 2-year Treasury bond yielding more than the 10 year bond, heightening concerns about an impending recession. Oil prices, meanwhile, moved lower as traders anticipated reduced demand in a slowing global economy. This weighed on the Fund’s oil majors Royal Dutch Shell (-11.5%) and BP (-6.8%).


Shell’s share price was also hit by underwhelming interim results. The company cited “challenging macroeconomic conditions in refining and chemicals as well as lower gas prices”. Current cost of supply earnings attributable to shareholders excluding identified items were down 26% year-on-year to US$3.46bn in the second quarter. This was despite a 4% rise in total production. Identified items included impairments and write-offs in Trinidad and Tobago and Australia as well as some one-off gains.


On the UK political scene, the prospect of a ‘no deal’ Brexit cast a shadow over the country’s outlook. The rhetoric from Prime Minister Johnson had many adopting ‘no deal’ as the base case scenario and the pound took a knock as a result, touching its lowest level since late 2016 in trade-weighted terms.


The top performing sectors in the UK market reflected the risk-off mood. The best performing sector in the FTSE All-Share was health care (+3.4%), while utilities (+1.7%) and telecoms (+0.1%) also held firm. Technology (-9.9%), oil & gas (-9.7%) and basic materials (-8.6%) were the biggest fallers.


A few of the Fund’s industrial holdings were affected by this risk-off backdrop. Companies such as Spirax-Sarco Engineering (-10.8%), Spectris (-9.2%) and Renishaw (-7.9%) were among the heaviest fallers.


Spirax-Sarco released interim results showing adjusted operating profit grew 4% and organic sales rose 8%, ahead of the company’s expectations. This was driven by a strong performance from the Steam Specialties and Watson-Marlow businesses. However, the group warned that industrial production growth in the second half of the year is now expected to be below earlier estimates, meaning full-year guidance was left unchanged.


Renishaw’s results for the 12 months to 30 June 2019 disappointed. The high precision products maker reported a 29% fall in annual pre-tax profit to £110m, missing its guidance of between £111 million and £126 million, which itself had been lowered in May. Revenue declined 6% to £574m and fell short of the market’s expectation of £587m. The company said it suffered from challenging economic conditions stemming from the trade tensions between the US and China and uncertainty surrounding Brexit.


The biggest positive contributions to returns in August came from the Fund’s defensive large cap holdings Unilever (+5.7%), AstraZeneca (+4.7%), Diageo (+3.0%) and GlaxoSmithKline (+1.7%).


The AA (+11.6%) was also amongst the best performers after the roadside assistance company stated that trading EBITDA (earnings before interest, taxes, depreciation and amortisation) in the six months to 31 July 2019 is expected to be ahead of last year. Chief Executive Simon Breakwell said the company is on track to meet full year trading EBITDA expectations and is also on course to meet medium term growth targets.


Oil equipment and services company Wood Group (-29.0%) released interim results that fell short of the market’s expectations. During the first half of 2019, the company reported a 2.6% decline in revenue to US$4.79bn compared to the consensus estimate of US$5.15bn. The fall was attributed to lower revenues in Asset Solutions Europe, Africa, Asia, Australia and Specialist Technical Solutions divisions.


Clipper Logistics (-18.3%) was another heavy faller. The e-retail and returns management logistics company stated that due to the timing of contract wins, earnings before interest and taxes (EBIT) would be modestly behind expectations for the year ended 30 April 2019, with a corresponding jump to financial year 2020. It issued its full-year results at the end of the month and reported a slight decline in EBIT to £20.2m from £20.9m last year, in what has been a difficult end market.


A number of new stocks were added to the Fund, most of which graduated from the UK Smaller Companies Fund. We are gradually building their positions and will write more about them in due course.


Positive contributors included:

AA (+11.6%), Unilever (+5.7%), AstraZeneca (+4.7%), Diageo (+3.0%) and GlaxoSmithKline (+1.7%).


Negative contributors included:

Wood Group (-29.0%), Royal Dutch Shell (-11.5%), Spirax-Sarco Engineering (-10.8%), Hargreaves Lansdown (-10.6%) and Spectris (-9.2%).


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








Liontrust Special Situations I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 31.08.2019, 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 30.06.2019, total return (net of fees and income reinvested), bid-to-bid, primary class.

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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.

Tuesday, September 17, 2019, 3:46 PM