Liontrust UK Growth Fund

July 2020 review

The Liontrust UK Growth Fund returned -0.3%* in July. The FTSE All-Share Index comparator benchmark returned -3.6% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -2.2%.

 

The UK equity market recorded its first monthly decline since March’s severe sell-off. Concerns about increasing Covid-19 case numbers in the US, Europe and China – and the potential for reinstated lockdowns – weighed on stockmarkets around the world. It also hit the US dollar, which fell to two-year lows against major trading partners. 

 

July was also a busy month for corporate updates. Pharmaceutical company Indivior (+66%) was a highlight, with its share price surging after it reached an agreement with the US Department of Justice regarding the marketing of its Suboxone film. The company agreed to pay authorities US$600m over a period of seven years, bringing an end to the uncertainty which had hung over the company’s investment case over the last few months. The company’s interim report showed net revenue fell 30% year-on-year as a result of the loss of market share for Suboxone.

 

Defence engineer Ultra Electronics (+19%) displayed resilient trading during the pandemic, with its interim results showing a 6.7% rise in revenue and a 3% increase in pre-tax profit. The company said that defence spending remained robust in its key markets despite Covid-19, resulting in a 14% rise in its order book. It added that while the duration of the virus disruption is uncertain, there has been a limited disruption to its trading so far and it expects not to experience any material long-term effect.

 

High-precision metrology and healthcare technology group Renishaw (+20%) stated that revenue for its financial year to 30 June 2020 is expected to be c.£510m, down from £574m in the previous year, but ahead of the consensus estimate of £497m. Statutory pre-tax profit will fall to £4m, compared with the £31m to £41m range published in its May trading update, due to restructuring costs of £24m and £22m fair value losses on financial instruments.

 

Fellow engineer IMI (+13%) reported on a resilient operational performance with margin improvement seen in the first six months of the year in all three divisions. The strength of its results allowed the company to fully reinstate the dividend that it had previously suspended, and reissue guidance for 2020 adjusted EPS between 65p-70p.

 

Weir Group’s (+13%) Oil & Gas division saw revenue fall by 47% year-on-year in the first half of 2020, as Covid-19 restrictions and oil supply concerns led to significant declines in oil production activity as well as project delays. Other divisions fared better, however, with overall group revenue declining 17% and adjusted operating profit of £133m coming in ahead of consensus estimates.

 

A number of the Fund’s heaviest fallers were large cap stocks: British American Tobacco (-17%), RELX (-13%) and Royal Dutch Shell (-12%). BAT’s share price decline came despite a positive interim update: revenue rose 0.8%, after a 4% hit from Covid-19, and pre-tax profit was up 19% year-on-year, largely due to a favourable comparison resulting from last year’s Quebec class action charge. It maintained its estimate of full-year currency-adjusted revenue growth of 1%-3%.

 

Shell’s second quarter earnings revealed that low oil prices continued to weigh on trading. Adjusted earnings saw a significant fall to US$638m, compared to US$3.5bn a year before. 

 

Positive contributors included:

Indivior (+66%), Renishaw (+20%), Ultra Electronics (+19%), IMI (+13%) and Weir Group (+13%).

 

Negative contributors included:

Petrofac (-21%), British American Tobacco (-17%), WH Smith (-14%), Aggreko (-13%) and RELX (-13%).

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

 

 

Jun-20

Jun-19

Jun-18

Jun-17

Jun-16

Liontrust UK Growth I Inc

-10.2

2.9

11.4

20.1

9.1

FTSE All Share

-13.0

0.6

9.0

18.1

2.2

IA UK All Companies

-11.0

-2.2

9.1

22.5

-4.1

Quartile

2

1

1

3

1

 

*Source: Financial Express, as at 31.07.20, 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 30.06.20, total return (net of fees and income reinvested), bid-to-bid, primary class.

 

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. 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.

Disclaimer

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.

Thursday, August 13, 2020, 2:32 PM