Liontrust Special Situations Fund

November 2019 review

The Liontrust Special Situations Fund returned 4.3%* in November. For comparison the FTSE All-Share Index returned 2.2% and the IA UK All Companies sector average return was 3.5%.


US-China trade talks once again dominated investor attention. Although the narrative seemed to shift on a daily basis, the speculation was not backed up with any real evidence of substantive developments, so there was no obstacle to investors choosing to adopt a risk-on mood.


Within the FTSE All-Share’s 2.2% rise, the FTSE 100 gain of 1.8% was once again outstripped by returns from mid and small caps. As the UK election campaign kicked off, sterling built on October’s gains, albeit in more modest terms: a 0.8% trade-weighted gain followed last month’s 3.4% rally.


The macro backdrop for many companies remains tough as global growth continues to slow, but the share price reactions from a number of stocks in November suggest that investor expectations may have dipped too low in some instances. There were some strong rallies for stocks that had merely met guidance or confirmed that the outlook hadn’t worsened.


For example, Spectris (+17.2%) rose on the reassuring tone of a trading statement covering July to October. When releasing interim results in July it had stated that, while its full year forecasts were not being changed, they had become harder to achieve due to weak macroeconomic conditions. In that context, the latest statement’s commitment to maintaining full-year forecasts was welcomed. Spectris commented that cost-cutting efforts were mitigating the impact of macro headwinds. Like-for-like sales during the four months were flat on the previous year and reported sales rose 4% due to the impact of acquisitions and beneficial currency moves.


Likewise, TI Fluid Systems (+23.1%) has previously warned of the sales impact of challenging conditions in the automotive market, so investors took some confidence from a Q3 trading update which showed outperformance of global light vehicle production. Revenues in the quarter rose 0.9% at reported rates and fell 1.0% in constant currency terms, comfortably ahead of the 2.2% fall in global light vehicle production. TI Fluid Systems engineers fluid storage, carrying and delivery systems for light vehicles.


Spirax-Sarco Engineering (+12.6%) also showed evidence of some resilient trading against a weak macro backdrop. A trading update confirmed that sales growth in the four months to 31 October had, as expected, fallen from the rate achieved earlier in the year, but would remain ahead of trends in global industrial production where 1.0% expansion is forecast in 2019. Spirax-Sarco’s full-year trading expectations are unchanged from its interim forecasts.


A quarterly trading update from inter-dealer broker TP ICAP (+12.6%) described “favourable market conditions” in the period with revenues rising 17% to £478m as a strong showing from its Rates activities offset weakness in Credit and Equities.


African Swine Fever was the reason behind the portfolio’s heaviest fall. The impact on Chinese pigs has significantly knocked sales at Eco Animal Health Group (-39.2%) in the six months to 30 September. The producer of animal pharmaceuticals issued a trading update in November which warned that interim results are now expected to be below last year’s level. China-US trade tensions exacerbated the situation as US swine producers had limited ability to increase exports to capitalise on the pork shortage in China. Eco Animal Health’s sales to China have fallen 60% year-on-year. Eco Animal Health also commented that the appointment of new auditors had helped uncover accounting issues which are likely to require the restatement of its last two set of results.


Among other updates from portfolio holdings, Kainos Group (+17.2%) issued very solid looking half-year results for the period to 30 September. Revenues grew by 29% while adjusted profit before tax rose 27%. Visibility remains strong, with a 10% increase in sales orders to £100m over the period, taking its order backlog up to £131m. Kainos is an outsourced provider of IT design and support services to the public sector and is a beneficiary of the UK government’s agenda to digitise public services.


Rotork (+8.8%) was another stock to rise on evidence of satisfactory trading. A trading update for the four months to 27 October stated that adjusted operating profit is on course to hit management forecasts for 2019, even if sales are now expected to below last year’s level. This is due to a larger than normal proportion of recent orders being for delivery next year rather than in 2019.


Full-year results from Compass Group (-7.9%) for the period to 30 September revealed 6.4% organic revenue growth, slightly ahead of the company’s target range of 4%-6%. It was the company’s comments regarding its European division that sent its shares lower. Volumes, profit margins and new business levels have all been negatively affected by deteriorating business and consumer confidence. In response, Compass is cutting back its cost base, a move which resulted in a £190m charge being taken against this set of results and is expected to incur a further £110m in one-off costs in 2010. The measures are targeting an annual cost benefit of £90m.


Plexus Holdings (-26.1%) shares slid on a warning that next year’s revenues will be materially lower as the company focuses on converting opportunities in its project pipeline following a significant business restructuring. Having sold its jack-up exploration wellhead rental business, Plexus is now a far less capital-intensive play on the sale of products which licence its proprietary POS-GRIP wellhead technology.


Asset manager Brooks Macdonald (-2.2%) announced the acquisition of Cornelian Asset Managers in a deal costing up to £39m. Cornelian is a Scottish asset manager whose £1.4bn assets under management will increase Brooks Macdonald’s total by 10%. The deal is expected to be earnings enhancing in the year to June 2020 and to boost earnings by 9% the following year is anticipated cost synergies are achieved. Of the initial consideration of £31m, £22m was paid in cash – an amount it raised via a £30m share placing at 1775p. The placing price was a few percent below the market price for Brooks Macdonald’s existing shares, which accounts for the small monthly drop. The Fund participated in the placing.


Statpro exited the portfolio in November due to completion of Confluence Technologies’ 230p a share acquisition.


Positive contributors included:

TI Fluid Systems (+23.1%), Spectris (+17.2%), Kainos Group (+17.2%), Spirax-Sarco Engineering (+12.6%) and TP ICAP (+12.6%).


Negative contributors included:

Eco Animal Health Group (-39.2%), Plexus Holdings (-26.1%), Compass Group (-7.9%), Caretech Holdings (-4.3%) and Iomart Group (-3.7%).


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







Liontrust Special Situations I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 30.11.2019, 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 30.09.2019, total return (net of fees and income reinvested), bid-to-bid, primary 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. 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.

Tuesday, December 10, 2019, 2:59 PM