Liontrust UK Ethical Fund

Q4 2018 review

The Fund returned -13.5% % over the quarter, underperforming the IA UK All Companies sector average of -12.5% and the MSCI UK Index’s  -9.7%*.


Sentiment remained fragile through the period, with Red October the latest in a long line of market declines in that particular month. Hints the Federal Reserve may soften its interest rate stance and a three-month trade ceasefire between the US and China eased concerns to some extent but hopes for the traditional year-end rally ended in disappointment and most indices around the world posted negative figures for 2018 as a whole.

In the UK, Brexit still dominates the news agenda and we wait to see how the situation develops as we tick down towards the UK’s scheduled exit from the EU on 29 March.

As ever, we follow economics and politics with interest but continue to focus on our core competence that we believe has enabled us to deliver outperformance: to identify businesses exposed to strong sustainability trends that will endure and grow their value per share regardless of the economic backdrop. Our process targets businesses that can grow structurally, driven by the shift towards a global economy that is more efficient, provides a higher quality of life and is more resilient.

Our process targets businesses that can grow structurally, driven by the shift towards a global economy that is more efficient, provides a higher quality of life and is more resilient.

Among contributors to returns during a challenging quarter were two infrastructure plays, John Laing Group and Renewables Infrastructure Group (TRIG).

John Laing Group owns and manages sustainable infrastructure assets including transport, social infrastructure (hospitals and sports grounds), renewables and waste treatment facilities. The company is exposed to a number of our themes: the majority of its business is associated with Making transportation more efficient but it also benefits from Increasing electricity generation from renewable sources and Improving recycling and waste treatment.

Renewables Infrastructure Group meanwhile is a mutual fund that invests in energy infrastructure projects located in the UK and Northern Europe. TRIG is also exposed to our Increasing electricity generation from renewable sources theme as it invests in a diversified range of operational renewable energy infrastructure assets like solar, wind, storage and demand-side projects.

As such, both stocks tend to have low correlation with the broader equity market and so performed strongly amid the selloff over the period.

We also saw a small positive contribution from one of our largest positions in the Fund, Compass Group. Compass provides catering services across the world and is exposed to our Leading ESG management theme. The business is well managed and, in recent years, has taken significant steps towards measuring and improving the environmental and social impacts it has on society.

It reported final-year numbers on 26 November and results were stellar across the board, delivering organic revenue growth of 5.5% and underlying earnings per share growth of 12.5%.

Turning to the weaker performers, Learning Technologies Group – the market leader in the fast growing e-learning workplace education market – experienced the largest share price fall over the quarter at 58%. This should be put in context however: the shares were actually up by over 140% over the nine months to the start of Q4 so ended the year down a more modest 2.9%.

The company is a beneficiary of our Providing education theme and is experiencing strong organic growth from existing professional educational products, as well as consolidating the fragmented market, with a focus on innovative content and technology.

Another drag on performance came from Smurfit Kappa, an integrated paper and paperboard manufacturer and converter. The company sits within our theme of Improving industrial and agricultural processes as paper and cardboard packaging has very high recycling rates (83% in the EU versus 40% for plastics), is biodegradable and competes with plastic on weight, cost and functionality.

Fears of a slowdown in the global economy and concerns of pricing pressure in the packaging industry has led to a sharp selloff in the industry and Smurfit Kappa has been no different. We believe these fears are short term in nature however and see considerable value in the shares over a long timeframe.

Elsewhere, Keller, the world’s largest ground engineering company, was one of the worst performers over the quarter as poor execution in its Asia-Pacific and Australian businesses offset good performance in Europe and the United States.

Keller is also exposed to our Leading ESG management theme as the company has industry-leading environmental protection and health and safety standards and performance. Following the profit warning in October, the company is currently under review.

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







Liontrust UK Ethical 2 Acc












IA UK All Companies












*Source: Financial Express, as at 31.12.18, primary share class, total return, net of fees and income reinvested.


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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.




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, February 4, 2019, 2:12 PM