Liontrust UK Growth Fund

March 2019 review

The Liontrust UK Growth Fund returned 3.1%* in March, compared with the 2.7% return from the FTSE All-Share Index.


US-China trade negotiations and UK Brexit developments generated a significant amount of background noise through March. However, with little evidence of real progress on either front, investors remained focused on the US Federal Reserve’s increasingly dovish tone. As had been widely expected, the Fed backed away from its prior forecast of two rate rises in 2019, instead predicting via its ‘dot plot’ that rates will remain on hold through the year. Futures markets are instead pricing in a rate cut by the end of 2019. In addition, the Fed announced that its quantitative tightening programme – a slow unwinding of quantitative easing – will be paused. The prospect of a postponement of monetary tightening helped extend the Q1 rally in equity markets.


Despite the deadline day of 29 March looming large there was no reduction in Brexit uncertainty as Theresa May’s deal was rejected again and a number of indicative votes failed to suggest that Parliament could take charge of the process. A short-term deadline extension to April 12 was granted by the EU. Worries of a chaotic exit weighed on certain assets. Sterling dropped a modest 1.2% in trade-weighted terms, but the effect was clearer in the market cap profile of the FTSE All-Share: the FTSE 100 Index returned 3.3% compared with the FTSE 250 Index’s -0.1% performance.


The Fund’s large-cap names therefore feature more prominently among March’s key contributors, especially those with a ‘defensive growth’ revenue stream, which were also boosted by bond yields compressing back down to very low levels. Diageo (+7.7%), Unilever (+9.7%), Reckitt Benckiser (+10.7%), Compass Group (+8.4%) and GlaxoSmithKline (+6.6%) were among the Fund’s holdings exposed to this effect.


British American Tobacco (+17.6%) also rallied significantly after the head of the US Food & Drug Administration resigned, prompting hopes among tobacco investors that this might see it ease off its efforts to tackle e-vaping and menthol cigarettes.


Delving into the Fund’s mid-caps we find March’s largest detractor: Renishaw (-12.3%), the high-tech precision measuring and calibration equipment provider. It issued a profit warning, downgrading the revenue and profit before tax forecast ranges that it had issued within January’s interim results. Full-year revenues are expected to be £595m - £620m, down from £635m - £665m, while the profit before tax forecast has been cut to £117 - £135m from £140m - £160m. The company cited a slowdown in demand from Asia for encoder products and from large consumer electronics manufacturers, issues which were noted in the company’s interim report but are now expected to persist through the second half of the year.


Renishaw has excellent levels of intellectual property (IP) – a result of decades of accumulated research and development – and has also built a global distribution network, giving it two of the three core Economic Advantage intangible assets we look for. While Renishaw enjoys reasonable levels of repeat orders, they are not contracted and the company is exposed to cyclical end markets. Its shares can reflect some of this cyclicality, however the company remains a high-quality long-term compounder of earnings in our view and is a core Fund holding.


Spirax-Sarco Engineering (+7.9%) announced a 15% sales increase in 2018, spilt roughly equally between organic and acquisitive growth. The company, which manufactures products to regulate steam and electrical thermal energy, stated that the integration of the recent Gestra and Chromalox acquisitions had progressed to schedule and their business performance continues to be in line with our expectations. Later in March, Spirax-Sarco Engineering announced the completion of another acquisition, paying £139m for Thermocoax whose core technology is a mineral insulated cable that can be used in extreme environments (temperature, pressure, vibration) and critical applications.


Coats’ (-10.7%), a leading manufacturer of industrial threads, issued 2018 results showing 6% constant currency revenue growth to £1.42bn in 2018, following a 2% increase for its Apparel and Footwear division and a 23% acceleration for Performance Materials. Adjusted operating profit rose 24% (constant currency) to £195m as margins expanded by 190 basis points to 13.8%. However, in reported terms operating profit slid 5% due to costs from exceptional items such as a restructuring programme and adherence to pensions legislation. The company’s outlook statement suggested that business current trends are solid in the new year but that it is cautious concerning the potential impact of current macroeconomic uncertainties.


Positive contributors included:

British American Tobacco (+17.6%), Reckitt Benckiser Group (+10.7%), Unilever (+9.7%), Compass Group (+8.4%) and Diageo (+7.7%).


Negative contributors included:

Renishaw (-12.3%), Coats Group (-10.7%), Indivior (-10.6%), TP ICAP (-7.3%) and RELX (-5.1%).


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








Liontrust UK Growth I Inc






FTSE All Share Index






IA UK All Companies













*Source: Financial Express, as at 31.03.2019, 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 31.03.2019, 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.

Tuesday, April 16, 2019, 11:02 AM