Liontrust Special Situations Fund

August 2020 review

The Liontrust GF Special Situations Fund returned 2.5%* in August. The Fund’s comparator benchmark, the FTSE All-Share, returned 2.4%.


ONS data statistically confirmed what was already common knowledge: the UK has suffered its largest recession on record. Q2’s 20% contraction adding to the 2.2% decline in Q1 to meet the technical parameters of a recession, i.e. two or more consecutive quarters of negative growth. The Bank of England is now forecasting the economy to shrink by 9.5% in 2020, less than its prior forecast of a 14% contraction. Counteracting this forecast of a shallower fall is a prediction of a slower recovery in 2021 and 2022 – of 9% and 3.5% respectively rather than 15% and 3%. However, economic forecasting is notoriously tricky, let alone under such unique circumstances, and the Bank’s underlying assumptions of no second wave of coronavirus and a smooth transition to an EU trade agreement by the start of 2021 shows how hard it is to attach much value to such estimates.


After July’s dip, the UK stockmarket resumed its recovery from the coronavirus crisis sell-off. In the US, the recovery seems complete for the S&P 500 and Nasdaq Composite indices, with both touching new all-time highs during the month. 


Some holdings issued financial reports showing large drops in revenues and/or profits during August. But in most cases, this is the second or third time they’ve updated on the impact of the pandemic and, as with the UK economic figures, the bad news has already been absorbed by investors (and share prices where necessary).


For example, having released a detailed Q2 trading update in July, PageGroup’s (+10.1%) interims results included few surprises. Its shares were therefore able to rise in August despite reporting a 19% year-on-year drop in revenues to £655m while swinging to a £1m pre-tax loss from £76m profit last year. Its dividend policy has been suspended and it is still unable to provide financial guidance for future periods. It has responded to these tough market conditions by cutting headcount by 9% and reducing its overall cost base by 21% in Q2. However, the most recent quarter offered some signs of encouragement, with PageGroup commenting that it has seen improvement in activity levels and forward-looking indicators across several of its markets.


Similarly, temporary power provider Aggreko (+24%) rallied after a trading statement showed a 12% drop in underlying revenues in the first half of 2020.  While it made an adjusted operating profit of £64m, down only 21% on last year’s level, this was wiped out by an £181m exceptional charge. This charge was taken following a review of asset values and outstanding customer bills in light of the Covid-19 impact and the acceleration in energy transition to lower carbon technologies (two of its key markets are oil & gas and petrochemical & refining). However, the company signalled its confidence in its near-term prospects by announcing an interim dividend for 2020 [the 2019 payment was cancelled in the midst of the coronavirus crisis] and providing full-year guidance on adjusted operating profit of £80m to £100m.


The gain for digital marketing specialist Next Fifteen Communications (+27%) was more intuitive. It commented that trading in the first half of the year was “well ahead” of the expectations it outlined in a March update, meaning that full-year results are on track to materially exceed market forecasts. While revenues fell 6% on an organic basis, they were up 6.5% to £126m overall, resulting in a 16% increase in adjusted operating profit to over £20m.


Final results from Clipper Logistics (+25%) confirmed the extent to which its logistics, e-fulfilment and returns management services have so far been insulated from Covid-19 disruption. Although many of its retail clients have been heavily affected by restrictions imposed during lockdown, Clipper Logistics is exposed primarily to online consumption and has therefore benefitted from the shift in spending from the high street to online. In the year to 30 April 2020, revenues rose by 8.8% to over £500m while operating profit increased 19% to £24m.  In a bullish outlook statement, management predicted that next year’s results will “comfortably” exceed market forecasts after the first few months saw exceptionally high demand for e-fulfilment and returns management services.


As expected, interim sales were down heavily at TI Fluid Systems (-9.4%), with the decline deepening from 16% in Q1 to 30% for the first half of the year. Despite this substantial drop in revenues, TI Fluid was able to achieve a positive adjusted operating profit margin of 2.3%, down from 10% a year earlier. The company manufactures highly engineered automotive fluid storage, carrying and delivery systems. Light vehicle production has fallen by about 40% in Europe and North America as a result of Covid-19. Due to consumer auto demand remaining highly uncertain, TI Fluid states that it is still unable to provide financial guidance for the full year.


Shares in Diageo (-9.0%) slid after full-year results showed a sales decline that was moderately worse than expected. A fall in organic net sales of 8% was worse than the 6.4% drop forecast by analysts. Sales growth in North America was offset by declines in other regions as various lockdown measures heavily impeded ‘on-trade’ sales to pubs, bars and restaurants.


In a Q1 update, Ideagen (+26%) stated that customer retention has been consistent with normal business conditions. Financial services, pharmaceuticals and the US federal sector have performed particularly well while Ideagen is also seeing increased business activity and a larger pipeline within manufacturing. It also announced the £16m acquisition of Qualsys, whose cloud-based software will be integrated to the quality management component of Ideagen’s quality, health, safety and environment (QHSE) cloud platform.


In May, interdealer broker TP ICAP (-8.3%) revealed that revenue growth had been boosted by higher trading volumes as a result of volatile market conditions caused by Covid-19. Its interim results for the six months to 30 June confirmed a 7% increase in revenue but outlook comments warned that July’s trading activity has slowed to materially below the 2019 level. It has therefore not upgraded its full-year guidance of low single-digit revenue growth.


Hargreaves Lansdown (-7.6%) rallied in May after it announced resilient trends in new business levels during the crisis. They lost some of these gains in August on the publication of full-year numbers which showed both net new business flows and assets under administration rising by 5% to £7.7bn and £104bn respectively.


Positive contributors included:

John Wood Group (+30%), YouGov (+25%), Aggreko (+24%), Compass Group (+16%) and PageGroup (+10%).


Negative contributors included:

IG Design (-13%), TI Fluid System (-9.4%), Diageo (-9.0%), TP ICAP (-8.3%) and Hargreaves Lansdown (-7.6%).


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








Liontrust GF Special Situations C3 Inst Acc GBP






FTSE All Share







*Source: Financial Express, as at 31.08.2020, total return (net of fees and income reinvested), sterling terms, C3 institutional class. Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 30.06.2020, total return (net of fees and income reinvested), 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.

Thursday, September 17, 2020, 3:18 PM