Liontrust UK Ethical Fund

Q4 2019 review

The Fund returned 12.6% over the quarter, outperforming the IA UK All Companies sector average of 7.1% and the MSCI UK Index’s 2.3%*.

With trade wars and Brexit dominating news for the whole of 2019, it was encouraging to see long-awaited developments on both fronts in the final weeks of another year plagued by uncertainty.

In Britain’s first December general election since 1923, Boris Johnson’s Conservative party won a comprehensive victory, with the largest Tory majority in 25 years. Such a result showed an electorate firmly deciding that to get Brexit done was the priority for the next government. Full ramifications will become clear in the coming months but in the short term, this result does remove near-term uncertainty and should give a much-needed boost to corporate and consumer confidence.

Meanwhile, in another festive bonus for markets, December also saw a significant move forward in the near two-year trade war between the US and China, with both sides agreeing to a phase one deal.

Our investment process continues to find well-managed companies with superior growth and fundamentals, driven by positive sustainability themes. Structural shifts such as energy efficiency, healthier eating and education provide our companies with reliable growth opportunities to compound value over the long term.

As ever, the majority of our performance came from stock selection, with a broad selection of holdings contributing to returns.

Cyber security firm Sophos Group had a good quarter on the back of another set of solid results – as well as announcing a $3.9bn takeover bid from US private equity firm Thoma Bravo, representing a 37% premium to the previous week’s closing price. We first invested in Sophos at IPO back in 2015 when it was sold by another private equity firm at a $1.5bn market cap and have opportunistically increased and reduced our position subject to fluctuations in the valuation.

Sophos is exposed to our Enhancing digital security theme, continuing to innovate in the world of cybersecurity and offering advances in the cloud, machine-learning, APIs (application program interface), synchronised security, automation, and managed threat response to deliver protection to organisations of any size.

Elsewhere, Legal & General Group was among the strongest contributors over the quarter, with the market reacting positively to the company’s decision to raise further capital via a Tier 2 subordinated debt issue. Commenting on the announcement, CEO Nigel Wilson highlighted strong year-to-date operating performance across all five of the company’s divisions, as well as its disciplined deployment of capital and strong balance sheet and net cash flow.


The company explained it was taking advantage of favourable market conditions to raise debt and we remain confident in the long-term prospects for this holding under our theme of Insuring a sustainable economy.

Kingspan also remains a long-term contributor to returns, with the Irish insulation specialist announcing a major 10-year strategy to reduce carbon emissions by 2030. Its Planet Passionate strategy is made up of 12 targets, addressing the impact of Kingspan’s business operations and manufacturing on the four key areas of energy, carbon, circularity and water.

On energy for example, the target is to power 60% of all Kingspan operations directly from renewable sources, with a minimum of 20% of this generated on manufacturing sites (up from around 6% today).

GB Group, a global specialist in identity data intelligence, had a strong quarter on the back of announcing impressive six-month results to end September, with revenue up 62% over 2018 figures and adjusted operating profits up 119%. The company is held under our Increasing financial resilience theme and CEO Chris Clark said the business continues to show strong organic growth performance across each of its three key solutions of Location, Identity and Fraud.

Performance has also benefitted from successful integrations of VIX Verify and IDology, both acquired in the second half of 2018.

Packaging provider Smurfit Kappa was a further solid performer, delivering strong results over nine months to end September despite ongoing economic challenges. Group CEO Tony Smurfit said consumers are increasingly demanding sustainable packaging solutions and with its expertise in paper-based packaging, the company is ideally positioned to take advantage of this mega trend.

Elsewhere, we participated in an IPO over the quarter, with Helios Towers enjoying solid early growth. The African mobile networks operator listed in October and saw its share price climb from 121.5p to 158p as the year ended. Another strong name for our Connecting people theme, the company is a leading player across five high-growth African markets, posting its nineteenth consecutive quarter of EBITDA growth in Q3 2019.

Among the few negative stocks over the period, contract catering firm Compass Group fell back slightly after a strong Q3, reporting less-than-expected full-year earnings to end September. CEO Dominic Blakemore highlighted another strong year overall, with organic revenue growth ahead of target largely driven by strong performance in North America. Deteriorating business and consumer confidence in Europe, however, has necessitated a restructuring of the European division in order to protect margins.

Specialist lender Distribution Finance Capital was another detractor amid a busy quarter for the company. In September, it announced half-year results to end June, revealing a 48% increase in assets and gross income up 181% versus 2018, but losses before tax of £7.3m including £3.3m of costs related to the demerger from TruFin Plc and IPO.

Then in November, DFC announced the
departure of CEO Chris Dailey following an internal investigation into his personal conduct. This change of management constituted an early amortisation event in line with funding facilities and so the company had to seek – and was ultimately granted – waivers from its lenders. Meanwhile, the Group’s expected banking licence cannot be granted before a permanent and approved CEO is appointed in 2020; Henry Kenner, the Group’s Chairman, has stepped in on an interim-basis as CEO.


The company has stated that it continues to see significant opportunities in the SME market, where current funders are unable or unwilling to provide the right type of lending to businesses. Our investment in DFC has been volatile and we will be monitoring closely developments regarding the CEO position.


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








Liontrust UK Ethical 2 Acc












IA UK All Companies sector average














*Source: Financial Express, as at 31.12.19, primary share class, total return, net of fees and income reinvested. 

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.

Wednesday, January 22, 2020, 9:13 AM