Liontrust Special Situations Fund

December 2019 review

The Liontrust Special Situations Fund returned 2.7%* in December. For comparison the FTSE All-Share Index returned 3.3% and the IA UK All Companies sector average return was 3.8%.

 

Following months of talks, the US and China finally agreed a ‘phase one’ deal which is expected to be signed in January. The agreement averted the scheduled mid-December introduction of US tariffs on US$156bn of Chinese goods. The deal will also see the US cut levies from 15% to 7% on the batch of tariffs introduced in September 2019 (on US$120bn of goods). For its part, China made commitments that included US$40bn of US agricultural purchases and a tightening of intellectual property protection.

 

The US Federal Reserve held interest rates steady and issued a dot-plot of members’ rate forecasts which suggested a more accommodative approach to the next few years. In September, the median forecast interest rate for 2022 was 2.4%; this dropped to 2.1% in December.

 

Investor sentiment in the UK was further bolstered by a convincing election win for Boris Johnson’s Conservatives, which resulted in an 80-seat majority. The prospect of some clarity following months of political uncertainty propelled the pound and UK shares higher. However, while shares hung on to gains, strength in the pound ebbed away over the remainder of the month as it became clear that Brexit talks are likely to dominate the landscape in 2020, with the prospect of a hard ‘no-deal’ lurking in the background.

 

Several of the Fund’s most prominent gainers were beneficiaries of this positive post-election mood. None of the gains in the five positive contributors listed at the end of this commentary can be attributed to stock-specific news.

 

In a month of such broad-based gains it is no surprise that the portfolio’s return distribution was heavily tilted towards positive territory; of the Fund’s 55 holdings, only 12 lost ground in December.

 

RWS Holdings (-7.2%) released full-year results that were in-line with expectations but sounded a note of caution on the impact of sterling strength in recent months. The intellectual property and life sciences translation specialist grew revenue by 16% to £356m, while cost control and a shift in sales mix led to higher margins and a 20% increase in adjusted profit before tax to £74m. The company commented that trading in the first two months of its new financial year has been in line with its expectations, but that sterling strength is presenting a headwind. RWS Holdings has a high level of overseas revenues – particularly the US – but a large proportion of its cost base is in the UK.

 

A brief sales update from Unilever (-5.0%) warned that it now expects to miss its prior guidance for sales growth at the lower end of the company’s 3%-5% multi-year target. The deterioration is blamed on economic slowdown in south Asia and difficult trading conditions in west Africa.

 

Shares in Clipper Logistics (-1.9%) were buoyed in November by the confirmation of a takeover approach, but slipped slightly from these levels in December as investors picked up on slightly soft company guidance that full year earnings are expected to be “broadly in line” with its previous forecasts. Interim results from the specialist in e-retail and returns management logistics were otherwise solid, outlining a 12% increase in revenue to £255m and 14% rise in operating profit to £12.1m. Talks between Clipper and its potential acquirer continue; the Panel on Takeovers and Mergers granted an extension of the deadline for a firm offer to be made from 18 December to 15 January.

 

A position in The Pebble Group was initiated after the Fund participated in a share placing which accompanied the company’s admission to London’s junior AIM stockmarket. The Pebble Group is comprised of two divisions, with their own separate corporate identities. The first, Brand Addition, supplies ethically-sourced bespoke promotional material to large global brands under long-term, typically 3-5 year contracts. As one of very few large promotional product services providers focussed on this sector, customers benefit from its distribution strength and wealth of creative services, underpinned by technology and their international infrastructure. The second, facilisgroup, via its @ease proprietary software (delivered as a service) helps support over 150 SMEs working in the US promotions industry, not only with a technology solution to underpin their business, but by providing access to a group of preferred suppliers which allows their customers to gain the benefits of bulk purchasing. Facilis also run community events for customers to share best practice learning.

 

Positive contributors included:

Kainos Group (+25.3%), TI Fluid Systems (+17.4%), Savills (+14.7%), John Wood Group (+13.4%) and PageGroup (+8.6%).

 

Negative contributors included:

RWS Holdings (-7.2%), Unilever (-5.0%), Renishaw (-4.9%), Craneware (-4.8%) and Clipper Logistics (-1.9%).

 

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

 

 

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Liontrust Special Situations I Inc

21.6

-2.1

16.8

15.8

13.9

FTSE All Share

19.2

-9.5

13.1

16.8

1.0

IA UK All Companies

22.3

-11.2

14.0

10.8

4.9

 

*Source: Financial Express, as at 31.12.2019, 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 31.12.2019, 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.

Disclaimer

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, January 10, 2020, 10:38 AM