Liontrust Special Situations Fund

October 2020 review

The Liontrust Special Situations Fund returned -2.7%* in October. The FTSE All-Share Index comparator benchmark returned -3.8% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -3.2%.


The Covid-19 infection rate continued to accelerate in the UK and elsewhere, dampening investor sentiment. Even more worryingly, hospitalisation rates also climbed higher, resulting in tighter social restrictions. In parts of Europe, including France and Germany, lockdowns were reinstated and the UK followed suit on the final day in October.          


Investors also had one eye on the US, where hopes of a stimulus announcement before the presidential election fizzled out. Talks have been ongoing for months and, as the pandemic continues to erode economic activity, a new fiscal package is a high priority to support the US economy through the crisis.


Within the UK stockmarket, large caps underperformed, with the FTSE 100 falling 4.8% compared to the FTSE 250’s marginal decline of 0.5% and the FTSE Small Cap (ex IT)’s 1.9% gain. This aided the Fund’s relative performance, given its higher mid and small cap exposure compared to the FTSE All-Share Index.


Some of the Fund’s heaviest fallers were large cap holdings. RELX (-12%), GlaxoSmithKline (-11%), Reckitt Benckiser (-10%) and Unilever (-7.0%) all saw sharp share price declines in October.


Consumer goods company Reckitt Benckiser said full-year like-for-like net revenues are now expected to grow by “low double digits”, having previously said they would rise by “high single digit”. This was following a 13% increase in Q3 like-for-like sales, with strong performances from its Hygiene and Health divisions. Reckitt’s peer Unilever saw underlying sales growth of 4.4% in the third quarter, as consumer behaviour continued to be influenced by the pandemic. The company said it had seen elevated demand for hand and home hygiene products as well as its food line.   


RELX’s Q3 trading update was less robust; the publisher said its Exhibitions business saw revenue decline 70% year-to-date, having been impacted by Covid-19 related restrictions. The division, which accounts for 16% of revenues, has restarted operations in China and Japan but these events are generating lower revenue than prior years. Its other divisions – Scientific, Technical & Medical and Risk & Business Analytics – both saw underlying revenue increase during the year and are both on course to deliver growth over the full year.


GlaxoSmithKline reported a 3% decline in revenue and a 2% fall in operating profit at constant exchange rates in the third quarter. The company said it has seen an improvement in vaccine rates, which alongside disciplined cost control leaves it on track to meet the lower end of its full year adjusted earnings-per-share guidance of 1% - 4% fall.


Kainos Group (+24%) was among the best performers in the Fund as it reported on a “very strong” trading performance since April. The outsourced provider of IT design and support services said the ongoing structural shift towards digital adoption has seen very high customer demand, with new contracts won in all its operating regions. Consequently, Kainos said its results for the year to 31 March 2021 are likely to be materially ahead of consensus estimates.


Research and analytics group YouGov (+15%) saw revenues increase by 12% and adjusted operating profit grow 18%. This was the result of a higher proportion of its sales coming from higher margin products. Management stated current trading is in line with expectations, but noted that while there has been no impact from the pandemic thus far, the marketing budgets of its customers may come under pressure going forward.


Engineering company Weir Group (+14%) also caught the market’s attention with the sale of its Oil & Gas unit to Caterpillar for US$405m. The company had indicated in February that it was looking to sell the division to focus more on its services to the mining industry.


The oil and gas sector has been hit hard of late, with oil prices tumbling during the pandemic. This has taken a toll on oil majors, including BP (-13%), which saw its share price hit the lowest level in over 25 years. In its third quarter results, the company warned about a volatile and challenging trading environment due to the ongoing impact of the Covid-19 pandemic. It added that there is some evidence of a recovery in oil demand, but the pace of normalisation will depend on the shape of the economic recovery and OPEC+ compliance.


During October, we sold Eco Animal Health Group after its management’s equity ownership fell below the 3% level which the Economic Advantage investment process requires to hold a small cap company.


We’ve also been building a position in Future over the past few months. It is a global multi-platform media company which owns successful publishing brands in specialist consumer and B2B sectors including technology, gaming and entertainment, music, creative and home interest. Its brands include techradar, PC Gamer, Homes & Gardens, Horse & Hound and FourFourTwo. Future’s strategy is to digitise the content offering for these traditionally print-based brands, thereby increasing the monetisation potential. In our view, its creative content and data along with its proprietary technology platform represent substantial intellectual property. It also has a strong physical and digital distribution network.

Positive contributors included:

TI Fluid Systems (+25%), Kainos Group (+24%), Aggreko (+19%), YouGov (+15%) and Weir Group (+14%).


Negative contributors included:

TP ICAP (-14%), Hargreaves Lansdown (-13%), BP (-13%), Intertek Group (-12%) and Sage Group (-12%).


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








Liontrust Special Situations I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 31.10.20, 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 30.09.20, 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.
Friday, November 13, 2020, 3:46 PM