Liontrust Special Situations Fund

July 2020 review

The Liontrust Special Situations Fund returned 1.8%* in July.  The FTSE All-Share Index comparator benchmark returned -3.6% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -2.2%.

 

The UK equity market recorded its first monthly decline since March’s severe sell-off. Concerns about increasing Covid-19 case numbers in the US, Europe and China – and the potential for reinstated lockdowns – weighed on stockmarkets around the world. It also hit the US dollar, which fell to two-year lows against major trading partners.

 

Given the number of dollar earners in the FTSE 100, this could partially explain why the UK’s blue-chip index lagged its smaller cap peers. The FTSE 100 ended the month 4.2% lower, the FTSE 250 fell 1.0% and the FTSE Small Cap ex- IT Index declined 2.4%. In attribution terms, the Fund’s overweight allocation to mid and small caps compared to the FTSE All-Share therefore helped it outperform the index in July.

 

July was also a busy month for company news, and there were broadly positive updates from the Fund’s holdings. Small cap stock Kainos Group (+47%) was the Fund’s best performer after it reported on robust trading through the pandemic. The outsourced provider of IT design and support services to the public sector stated that long-term customer relationships and ongoing demand from the NHS has meant its business has been resilient. The company expects revenue and adjusted profit to be “substantially ahead” of consensus forecasts for the year to 31 March 2021. It will now look to repay the UK government support it received as part of the Job Retention Scheme. Despite this positive update, Kainos remained cautious in its outlook stating that it remains too early to judge the economic impact of Covid-19 on its customers.

 

Strong results were also reported by Gamma Communications (+23%). The provider of voice, data and mobile communications now expects results for the full year to be ahead of consensus forecasts. The company’s revenue base remained solid, with 93% classified as recurring revenue, and it only experienced minimal cancellations of existing contracts. The company also stated that the integration of its new acquisitions – Voz Telecom and HFO Holdings – are progressing well and it continues to appraise other acquisition targets.

 

High-precision metrology and healthcare technology group Renishaw (+20%) stated that revenue for its financial year to 30 June 2020 is expected to be c.£510m, down from £574m in the previous year, but ahead of the consensus estimate of £497m. Statutory pre-tax profit will fall to £4m, compared with the £31m to £41m range published in its May trading update, due to restructuring costs of £24m and £22m fair value losses of financial instruments.

 

Weir Group’s Oil & Gas division saw revenue fall by 47% year-on-year in the first half of 2020, as Covid-19 restrictions and oil supply concerns resulted in significant declines in oil production activity as well as project delays. Other divisions fared better, however, with overall group revenue declining 17% and adjusted operating profit of £133m coming in ahead of consensus estimates.

 

A number of the Fund’s heaviest fallers were large cap stocks: RELX (-13%), Royal Dutch Shell (-12%) and BP (-10%). Shell’s second quarter earnings revealed that low oil prices continued to weigh on trading. Adjusted earnings saw a significant fall to US$638m, compared to US$3.5bn a year before.

 

Positive contributors included:

Kainos Group (+47%), Gamma Communications (+23%), Renishaw (+20%), IntegraFin (+18%) and Weir Group (+13%).

 

Negative contributors included:

Aggreko (-13%), RELX (-13%), Royal Dutch Shell (-12%), BP (-10%) and Savills (-9%).

 

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

 

 

Jun-20

Jun-19

Jun-18

Jun-17

Jun-16

Liontrust Special Situations I Inc

-7.7

6.5

15.3

23.0

6.9

FTSE All Share

-13.0

0.6

9.0

18.1

2.2

IA UK All Companies

-11.0

-2.2

9.1

22.5

-4.1

Quartile

2

1

1

2

1

 

*Source: Financial Express, as at 31.07.20, 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 30.06.20, 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.

Thursday, August 13, 2020, 2:32 PM