Liontrust Special Situations Fund

September 2020 review

The Liontrust Special Situations Fund returned -1.6%* in September. The FTSE All-Share Index comparator benchmark returned -1.7% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -1.8%.


While the first half of 2020 included a spike in volatility as the stockmarket suffered a correction before staging a partial recovery, the third quarter saw much more subdued conditions as investors became used to monitoring the path of the pandemic and assessing the economic costs as well as the various policy responses.


In September, there was gathering evidence of an uptick in Covid-19 infections towards a second wave in developed economies, while the US Federal Reserve gave further details of its latest ultra-dovish move: to adopt a flexible approach to inflation that allows it to run above 2% for some time without raising interest rates. But there was nothing to shift the prevailing mood decidedly into more bullish or fearful territory.


Within the Fund there was a modest amount of newsflow – mostly companies updated on the period to 30 June. Alpha FX (+19%), the specialist in currency risk management, was one of these. It issued interim results that included upbeat outlook comments. Revenue over the first half of 2020 was up 16% to £18m, the result of a strong Q1 followed by a coronavirus affected Q2. Importantly, Alpha FX indicated that group performance in July and August had returned to the levels experienced during Q1. Client numbers increased from 648 to 671 over the six months; its customer base is also diverse, with the largest client accounting for less than 3% of the forward book.


Some of the Fund’s largest positive contributors moved higher without issuing any key corporate updates in September. Both Domino’s Pizza Group (+8.8%) and Clipper Logistics (+18%) have benefited from the boost to online sales as individuals spend more time at home during the pandemic, and both continued to rise during September after releasing results in August. Clipper’s gain was also aided by some rumours of private equity bid interest.


Similarly, Renishaw (+17%) didn’t make any announcements. Its strong return in September coincided with its addition to the FTSE 100 reserve list. Were it to be promoted to the large-cap index, it would provide another illustration of the substantial growth of a stock we have held in the Economic Advantage range of Funds for over 20 years.


Among the Fund’s weaker holdings, Paypoint (-20%) fell heavily late in the month after the energy regulator Ofgem issued a statement suggesting Paypoint may have abused a dominant position in the over-the-counter market for pre-paid energy customers. The regulator’s provisional findings included objections to Paypoint’s practice of including exclusivity clauses in its contracts with energy suppliers and retailers, limiting the prospects for competitors.


TP ICAP’s (-25%) announcement of a US$600m to US$700m potential acquisition of equities ‘dark trading’ specialist Liquidnet also prompted some investor unease late in the month.


Delving further into the portfolio, there were a handful of notable newsflow-driven share price moves among the smaller holdings. For example, mobile payments company Bango (+15%) rose as it released interim results confirming the rapid pace of growth previewed in a July trading update. Revenue grew by 50% to £4.8m off the back of £743m in end user spend (EUS). Bango forecasts EUS to reach £2bn before the end of the year. Notably, Bango commented that this growth is the result of contracts secured in prior periods and is yet to include the positive effect from the recent surge in online spending during the pandemic.


Trends were less positive at Pebble Group (-26%), where revenues fell almost 25% in the first half of 2020 as its bespoke promotional material business, Brand Addition, suffered during the pandemic. The company commented that order intake for Brand Addition is starting to recover, now running at about 60% of prior year levels. Pebble’s @ease procurement software for the promotions industry – operated by its facilisgroup business unit – experienced a better six months, generating revenue growth, albeit from a much lower base. Pebble Group also experienced a £7.2m adjusted operating cash outflow over the six months (compared with £1.2m adjusted operating profit) due to changes in working capital. However, it reiterated its confidence in its balance sheet strength and commented that a lot of the working capital accumulation related to a £4m trade debt that has been paid down to the agreed schedule during July and August.


Following August’s share rally on the back of a Q1 trading update (covering May to July), Ideagen (-16%) lost much of this ground in September after releasing results for the year to 30 April. The supplier of integrated risk management tools to highly regulated industries grew revenues by 21% to £57m, with recurring revenues (one of its core intangible assets identified by the Economic Advantage investment process) now accounting for 76% of the total, up from 67% a year ago. Ideagen reiterated that trading so far in its new financial year has been robust, with strong demand for its products.


We’ve written before about a number of smaller companies in the Economic Advantage portfolios that have raised money during the pandemic to fund expansion (as opposed to shoring up liquidity), and digital training provider Learning Technologies (-14%) is prominent amongst this group. In May, it placed shares equivalent to 10% of its share capital in order to take advantage of the growth opportunity provided by the accelerated shift to digital learning as large numbers of people work from home. It has completed nine deals over the last seven years and in September announced another bolt-on addition: eCreators. The company is Australia’s leading provider of Moodle, an open-source learning management system. The deal will cost an initial £3.1m with further contingent payments up to a maximum of £3.7m. Learning Technologies also released in-line interim results during the month, which maintained full-year guidance.


Positive contributors included:

Alpha FX (+19%), Clipper Logistics (+18%), Renishaw (+17%), Domino’s Pizza Group (+8.8%) and Intertek (+8%).


Negative contributors included:

TP ICAP (-25%), Aggreko (-22%), Paypoint (-20%), YouGov (-15%) and BP (-15%).


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








Liontrust Special Situations I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 30.09.20, 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, October 9, 2020, 2:48 PM