Liontrust UK Growth Fund

January 2020 review

The Liontrust UK Growth Fund returned -1.7%* in January. For comparison the FTSE All-Share Index returned -3.3% and the IA UK All Companies sector average return was -2.4%.


The mid-month signing of a ‘phase one’ trade agreement between the US and China gave investors some cause for cheer at the start of 2020, but sentiment swiftly soured as an outbreak of coronavirus caused increasing international concern. The virus, which originated in the Chinese city of Wuhan, showed signs of spreading rapidly, raising the prospect of a significant human cost as well as substantial economic ramifications from containment measures.


The potential negative impact on global growth was reflected in falls of the price of oil and other commodities. Brent crude prices dropped 12% over January. As a result, the oil & gas and basic materials sectors of the FTSE All-Share were its weakest, falling 8.2% and 7.5% respectively.


The Fund holds no miners so avoided some of the weaker stocks, but Royal Dutch Shell (-10.7%), Petrofac (-8.8%), John Wood Group (-5.6%) and BP (-3.2%) did see losses.


Macroeconomic and political uncertainty were cited by recruiter PageGroup (-12.7%) when reporting a 0.4% decline in Q4 gross profit. Large markets including China, the UK and France were among the worst affected, leading to a reduction in fee-earner headcount of 54. PageGroup commented that the tough Q4 trading conditions are anticipated to continue in the majority of regions.


The cyclicality of metrology specialist Renishaw’s (+5.5%) end markets during a period of weak global growth has been evident through recent sets of results. In January it announced more of the same, with a 14% decline in interim revenue to £259m. Renishaw’s shares firmed slightly over the month, suggesting that a soft macro outlook is now factored into consensus expectations following downgrades in the second half of 2019. As well as weaker demand in the machine tool sector and trade tensions between the US and China, Renishaw’s year-on-year comparison is made less favourable by some large orders from Asian consumer electronic manufacturers last year that failed to repeat. The company has reduced costs – headcount dropping by 170 to 4870 – but still has substantial operation leverage that saw profits drop from £60m to £14m.


Interim results from Hargreaves Lansdown (-10.9%) revealed a 10% year-on-year fall in net new business to £2.3bn in the period to 31 December 2019 as political uncertainty and Woodford fund suspensions undermined investor confidence. The company nevertheless increased assets under administration by 6% to £105bn over the six months. Profit before tax rose by 12% to £171m.


Education group Pearson (-10.8%) confirmed that it will meet its most recent guidance for 2019 adjusted operating profit of c.£590m, but weak demand for its US higher education courseware continues to drag heavily on overall performance. The division, which represents around a quarter of revenues, saw sales decline by around 12% in 2019. US higher education students are increasingly consuming digital study materials, leading to reduced demand for Pearson’s print and bundled print/digital products. Pearson now expects 2020 adjusted operating profit to fall to between £500m and £580m.


In better news for the portfolio, a year-end trading update from Savills (+9.6%) confirmed a rebound in confidence among UK real estate investors following December’s general election result. The boost to investor sentiment helped its UK commercial and residential business lines perform well, which – together with strong performances from its US division and investment management operations – it cites as pushing 2019 results towards the upper end of its expectations.


The proposed merger of Raytheon and United Technologies Corporation (UTC) has thrown up opportunities for BAE Systems (+11.8%) to acquire business units put up for sale to satisfy regulatory requirements. BAE has agreed to pay Collins Aerospace (a subsidiary of UTC) US$1.9bn for its Military Global Positioning System and US$275m to Raytheon for Airborne Tactical Radios. The deals, which would be cash funded and subject to successful completion of the merger, are seen as a good fit for BAE’s US-based Electronic Systems business.


A December trading update from Unilever (+4.2%) had warned that it would miss its medium-term sales target range of 3% - 5%. Full year 2019 results released at the end of January confirmed underlying sales growth of 2.9% during 2019, driven by small improvements in both volume and price. There was better news in terms of profitability as its underlying operating margin expanded by 50 basis points to 19.1%. The consumer goods giant also announced a strategic review of its global tea business, which includes the Lipton and PG Tips brands, following subdued demand for traditional black tea in developed markets.


Shares in TI Fluid Systems (-10.9%) have recovered strongly since an August setback which was triggered by a weak outlook for the global automotive market within its interim results. A solid Q3 trading update released in November offered some reassurance and helped fuel a rally through to the end of the year. A full year trading update in January now appears to have triggered some profit taking. The manufacturer of highly engineered automotive fluid storage maintained guidance for 2019 revenues of €3.4bn, outgrowing global light vehicle production by more than 2%.


In the second half of 2019 Diageo (-6.0%) grew net sales by 4.2% to £7.2bn. Investment in marketing, which rose 6%, led to operating profit growing at a slower rate of 2%. Uncertainty in the global trade environment is one of the main reasons Diageo forecasts that net sales growth for the full year (ending 30 June) will be towards the lower end of its 4% to 6% mid-term target.


Positive contributors included:

BAE Systems (+11.8%), Savills (+9.6%), Ultra Electronics (+6.8%), RELX (+5.6%) and Renishaw (+5.5%).


Negative contributors included:

PageGroup (-12.7%), TI Fluid Systems (-10.9%), Hargreaves Lansdown (-10.9%), Pearson (-10.8%) and Weir Group (-10.7%).


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








Liontrust UK Growth I Inc






FTSE All Share






IA UK Smaller Companies













*Source: Financial Express, as at 31.01.20, 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 31.12.19, 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.

Monday, February 17, 2020, 2:12 PM