Liontrust Special Situations Fund

July 2019 review

The Liontrust Special Situations Fund returned 0.7%* in July. For comparison the FTSE All-Share Index returned 2.0%.


Investor sentiment continued to be driven by the prospect of an inflexion point in monetary policy and – for UK investors – the heightened probability of a no-deal Brexit.


The US Federal Reserve cut interest rates by 25 basis points to a range of 2.0%-2.25%, the first cut since the financial crisis a decade ago. In explaining the decision, the bank referred to the cut as a “mid-cycle adjustment to policy” to address “the implications of global developments for the economic outlook as well as muted inflation pressures”. The move had been widely priced in by investors, many of whom were hoping for a 50 basis point cut. Accompanying comments from Jerome Powell were interpreted as less dovish than expected; Donald Trump led the attacks on the Fed Chairman: “as usual, Powell let us down”.


The European Central Bank also looks to be moving towards easing. Its president, Mario Draghi, commented that the bank is exploring a range of stimulus options to battle persistently low inflation.


Boris Johnson’s victory in the Conservative leadership race was interpreted as significantly raising the chances of a ‘no deal’ Brexit. He promised to take Britain out of the EU by 31 October with “no ifs or buts”, rhetoric which contributed to a 2.4% fall in the pound (in trade-weighted terms). Meanwhile the International Monetary Fund highlighted a no-deal Brexit as a principal risk factor to the global economy along with further US-China tariffs. Talks between the US and China resumed, with Donald Trump tweeting on 30 July that Chinese negotiators “always change the deal in the end to their benefit” and that “the deal that they get will be much tougher than what we are negotiating now!”


As in June, a combination of sterling weakness and Brexit fears contributed to the more internationally diverse large-cap FTSE 100 index outperforming the FTSE 250 and FTSE Small-Cap Indices, which are seen as more exposed to domestic economic prospects. The FTSE 100 returned 2.2% while the FTSE 250 and FTSE Small-Cap (ex-investment trust) indices returned 1.3% and -1.8% respectively.


Although the Fund’s largest riser Wood Group (+17.5%) issued no newsflow – instead extending its rally after a late-June trading update – July saw a number of companies update on the  first half of 2019.


Shares in GlobalData (+15.1%) rose in the run up to interim results released on 30 July. The company is a provider of subscription-based data and analytics to a range of industries. In the first six months of this year, it saw revenues rise by 18% to £88.5m, of which 10 percentage points was organic growth. This top-line rise dropped down to a 50% improvement in adjusted profit before tax to £27.8m. GlobalData highlighted this operational gearing in its statement, commenting that its high fixed cost base is expected to yield “significant incremental margin” in future periods. Outlook comments from the company were largely upbeat, noting that deferred revenues of £77m provide GlobalData some short-term reassurance against the uncertainties of the Brexit process.


Interim results from AstraZeneca (+9.7%) gave investors plenty of cause for optimism, with the company upgrading its 2019 sales growth guidance from a “high single digit” to “low double digit” percentage. During the first six months, sales rose 17% in constant currency terms to US$11.2bn while gross margin improved by two percentage points to 80%. The company commented that the sales acceleration was attributable to new medicines, five of which it anticipates to reach blockbuster status (sales > U$1bn) this year. AstraZeneca also stated that it expects the second half of the year to be an exceptionally busy period for its pipeline.


Large-cap pharmaceuticals peer GlaxoSmithKline (+8.0%) was also able to upgrade 2019 guidance within its interim results. It now expects adjusted earnings per share to fall 3%-5% rather than by 5%-9% as previously forecast. One of the reasons for the expected earnings contraction is the expiry of its patent protection on asthma drug Advair this year. Strength in other areas such as shingles vaccine Shingrix in the first half of the year helped prompt the guidance upgrade. Overall second quarter revenues amounted to £7.8bn, ahead of analyst expectations for £7.6bn.


A third quarter update from caterer Compass Group (+10.4%) forecast that full year organic revenue growth is now expected to be at the top of its 4-6% range. The company’s third quarter growth rate was 6.3%, boosted by a strong showing from its North American operations of 8.5%. Looking forward, the company commented that excellent revenue growth in North America and improving rates in its Rest of World division are compensating for a difficult volume environment in Europe.


PageGroup (-12.5%) shares retreated on company guidance that 2019 operating profit is likely to be at the lower end of consensus analyst forecasts. A second quarter trading update simply blamed “current macro-economic conditions”; although PageGroup registered a record level of quarterly gross profit, activity in Greater China contracted by 1% as tariff fears persisted while the UK fell 2.4% as Brexit uncertainty weighted on confidence.


A tougher market backdrop was also evident in interim results from Spectris (-11.5%). While the instrumentation and controls specialist’s profit before tax showed a 4% like-for-like improvement in the first half of 2019, sales rose by only 1% in like-for-like terms. The company’s outlook comments also hinted at a moderation of expectations, stating that its forecasts for the full year are unchanged but that “current macroeconomic conditions make it more challenging”.


A nine month trading update for accountancy software provider Sage Group (-10.3%) was a mixed bag for investors, with both the growth in recurring subscription revenues (+11.4% to £405m) and the decline in software sales (-15.5% to £195m) exceeding expectations. Sage’s current strategy will see it refocus as a software-as-a-service company, making the most of its distribution assets and boosting its subscription sales. Shares in the company softened on the back of this statement due to full year operating guidance towards the lower end of the previously announced 23-25% target range.  


Positive contributors included:

Wood Group (+17.5%), GlobalData (+15.1%), Compass Group (+10.4%), AstraZeneca (+9.7%) and Hargreaves Lansdown (+9.4%).


Negative contributors included:

Kainos Group (-13.8%), PageGroup (-12.5%), Spectris (-11.5%), Domino’s Pizza Group (-11.0%) and Sage Group (-10.3%).

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








Liontrust Special Situations I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 31.07.2019, 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.

Monday, August 12, 2019, 5:35 PM