Liontrust UK Growth Fund

November 2020 review

The Liontrust UK Growth Fund returned 10.3%* in November. The FTSE All-Share Index comparator benchmark returned 12.7% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 14.1%.


Having nursed heavy year-to-date losses since the Covid-19 pandemic sparked a steep drop in February and March, the UK stockmarket bounced back in November. The rally in global equity markets was catalysed by positive Covid-19 vaccine news. Early in the month, trial results for a Pfizer/BioNTech vaccine showed over 90% efficacy. This was followed by positive trial results for vaccines being developed by both Moderna and AstraZeneca/University of Oxford.


As investors looked with optimism to a return to social and economic normality in 2021, the upward adjustment in share prices was sharp; the FTSE 100 recorded its largest monthly gain since 1989. All major market capitalisation segments of the UK market registered double-digit percentage gains. The breakdown of the market’s gains suggests a reversal of the trends witnessed during Q1: those stocks and sectors that were hardest hit by pandemic lockdown measures saw the greatest relief rally on vaccine hopes. For example, the top five FTSE All-Share risers in absolute terms included three from the travel & leisure sector: Cineworld Group, On the Beach Group and Saga.


The oil & gas sector was another prominent beneficiary of the rally. With oil prices tumbling during the pandemic, the sector had lost 56% in 2020 heading into November. In November, it rallied by 30%.


Earlier this year, the Fund accrued good relative performance against the index partly due to its insulation from some of the areas that were worst affected by the pandemic; it has low exposure to the financials sector, for example, with no banks holdings. As investor sentiment and the market recovered very sharply on vaccine progress, it lost some of this ground. Although the Fund had exposure to oil & gas sector strength via John Wood Group (+41%), Royal Dutch Shell (+34%), BP (+28%) and Petrofac (+29%), it has lower than average overall sensitivity to the vaccine rally.


This return profile is entirely consistent with the manner in which the Fund is managed. Funds run under the Economic Advantage process have a tendency to generate good relative performance during market sell-offs or steady market conditions, which can be partially offset by a lag during short, sharp, sentiment-driven rallies. We believe this may be due to the investment process’s focus on dependable businesses with high barriers to competition and strong cash flow returns on capital, which we think can prove to be more defensive in times of market stress and reliably deliver on expectations in more normalised market conditions. We believe that – on average – the degree of downside protection afforded by the Fund’s portfolio of companies exceeds the lag during rallies, enabling us to target outperformance over the long term.


WH Smith (+42%) was the portfolio’s largest riser. It released full-year results during the month, but the jump in its shares was driven by the vaccine news. As a retailer with a high street presence and a focus on travel locations – airports, rail stations, etc – it saw revenues drop by 80% in April and May, so stands to gain if Covid-19 social restrictions are removed. Global catering firm Compass Group (+26%), temporary power provider Aggreko (+27%) and education courseware specialist Pearson (+27%) moved higher on similar rationale.


While Compass Group’s full-year results announcement was eclipsed by the vaccine rally in driving its shares higher, Aggreko did gain some extra impetus from a trading statement. It has seen encouraging signs of increasing actitivy levels, leading it to forecast 2020 pre-tax profit towards the top end of the £80m - £100m guidance it had previously issued.


BAE Systems (+27%) was another prominent gainer as it released a trading update guiding towards earnings per share for 2020 that should slightly exceed its previous forecasts.


Recent portfolio addition Future (-15%) was among the stocks that didn’t participate in the market rally, as investors digested details of its surprise offer of nearly £600m for GoCo Group. GoCo owns a handful of price comparison brands such as GoCompare, which Future believes will complement its own specialist consumer and B2B publishing brands. The deal, which has been recommended by the board of GoCo Group, would be financed partly through cash and partly through the issue of new shares in Future. The Fund’s position in Future was still being built from a low level during the month, which limited the negative performance contribution.


Other portfolio fallers included Indivior (-8.3%), Halma (-6.4%) and Sage Group (-4.8%). Indivior’s share price fell at the end of the month after former parent Reckitt Benckiser submitted a £1bn court complaint against the pharmaceutical company related to an indemnity contained in the demerger agreement. Indivior, which demerged from Reckitt in November 2014, stated that it believes the claim is without merit and intends to defend itself if the claim is served. Halma’s negative return came despite interim results that included upgraded full-year guidance of a 5% drop in profit before tax, rather than the 5% - 10% range previously given. Sage Group’s share price weakness was easier to attribute: although it recorded 9% organic recurring revenue growth in the year to 30 September, it cited an uncertain outlook when forecasting 3% - 5% growth in the same measure next year.


Positive contributors included:

WH Smith (+42%), John Wood Group (+41%), Royal Dutch Shell (+34%), BP (+28%) and BAE Systems (+27%)


Negative contributors included:

Future (-14.9%), Indivior (-8.3%), Halma (-6.4%), Sage Group (-4.8%) and Domino’s Pizza Group (-3.5%)


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








Liontrust UK Growth I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 30.11.20, 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 30.09.20, 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.

Wednesday, December 16, 2020, 4:16 PM