Liontrust Special Situations Fund

January 2018 review

The Liontrust Special Situations Fund returned -1.6%* in January, compared with the -1.9% return from the FTSE All-Share Index.


Having initially notched up new all-time highs, the UK and global equity markets succumbed to late-month weakness which was triggered by trends in fixed income markets. For the first half of the month, equities were able to trade close to record highs and maintain the low volatility of recent years despite increasing price action within bond markets. With the UK and US 10 year government bond yields rising by 32bps and 30bps to 1.51% and 2.70% respectively, equity investors began to worry about the outlook for inflation and monetary policy tightening, triggering a weak finish to the month.


Unsurprisingly, the softest areas of the UK market were those which are most exposed to bond market read-across, ‘proxy’ sectors such as utilities (-5.9%), telecoms (-5.0%) and tobacco (-4.9%) also seeing their capital values fall and yields rise. The Fund’s lack of exposure to these areas was a source of positive attribution.


It was a busy month for newsflow from portfolio holdings, providing something of a mixed bag in terms of their tone. One of the more disappointing announcements came from EMIS Group (-25.9%). It notified the market that it failed to meet contractual service and reporting obligations with NHS Digital, a discovery made during a review led by Andy Thorburn who joined as CEO last year. On the same day, in a separate announcement the company stated that trading for 2017 had otherwise been in line with its expectations. This provided little comfort to investors, who marked the shares down fairly aggressively with the company only able to indicate that the financial impact will be in the “upper single digits of millions of pounds”. Further details are expected within its release of full-year results in mid-March.


Shares in the AA (-25.9%) also fell heavily, although without such an obvious catalyst. Broker downgrades and concerns over debt levels in an environment of rising interest rates are likely to have played a role in the weakness.


These detractors from Fund performance contrast against strong showings from the likes of Craneware (+28.2%) and Brooks Macdonald (+18.8%) in what was a busy month for newsflow from Fund holdings. A trading statement from Craneware (+28.2%) outlined an EBITDA (earnings before interest, tax, depreciation and amortisation) growth expectation of 15%-18% for the six months to 31 December 2017. Contract renewals ran at over 100% during the period when measured by US dollar value. With it also announcing a large contract win with a US healthcare network, shares in the company moved sharply higher. The contract with an unnamed US network will use Craneware’s IT solutions at over 75 facilities and is expected to generate revenues of more than US$16m over an initial five-year term.


Brooks Macdonald (+18.8%) rose following the release of a trading update for the interim period to 31 December 2017. The company’s funds under management (FUM) rose by 12.3% to £11.7bn, with roughly two thirds of the rise driven by inflows and the remainder from rising asset prices. Although the company stated that its full year financial expectations remain unchanged, it did note that the revenue impact of the FUM increase had been offset by a number of margin pressures. In addition to lower yields and falling transactional income as volatility stayed low, Brooks Macdonald stated that the shift towards all-in fees is having a negative impact on income.


In another trading update, market research firm YouGov (+11.5%) stated that its performance had been ahead of its previous expectations for the six months to 31 January 2018. The company highlighted the benefits of its strategy to focus on increasing the contribution of its high-margin Data Products & Services division.


PageGroup (+16.4%) also updated on trading, revealing that despite a quarterly decline in UK activity, group gross profit growth accelerated to 13.8% year-on-year in Q4 2017 from 8.8% in Q3, following strong demand in Continental Europe, Asia and the Americas. Caution regarding the UK set the tone for the company’s 2018 outlook – the “macro environment impacting some clients and senior candidates” – but PageGroup guided investors towards the upper end of the market’s consensus range for 2017 operating profit, at around £119m.


Mobile payments company Bango (-22.1%) issued an in-line trading update detailing a 105% increase in end user spend (EUS), its preferred top line metric. EUS ended the year at an annualised run rate of £400m, compared with the £271m achevied during the year. It also announced a partnership with Netflix in Mexico to allow customers to charge their subscriptions to their pre or post-paid mobile phone bills. Shares in the company traded lower later in the month on the news that it was raising £5m via a placing at a discounted share price of 180p. The placing will finance the cash element of an acquisition of Audiens, the data management business of Italian company Digitouch. The management of Bango believes that Audiens’ data monetisation tools can accelerate revenue growth, bringing its data strategy forward by 12 – 18 months.


With RELX (-10.4%) deriving around 40% of its revenues from North America, the company was exposed to a depreciation in the US dollar, which fell 5% against sterling. Towards the end of the month, it also announced plans to acquire ThreatMetric, an online authentication specialist which analyses over 100m online transactions a day, for a £580m cash consideration. The business will be integrated into the LexisNexis Risk Solutions business, bolstering the digital side of its existing identity services.


Positive contributors included:

Craneware (+28.2%), Brooks Macdonald Group (+18.8%), PageGroup (+16.4%), Yougov (+11.5%) and Rotork (+10.7%).


Negative contributors included:

Emis Group (-25.9%), AA (-25.9%), Shire (-14.7%), Smart Metering Systems (-13.9%) and RELX (-10.4%).

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 31.01.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

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 issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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.


This content 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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, February 16, 2018, 4:48 PM