Liontrust UK Growth Fund

October 2019 review

The Liontrust UK Growth Fund returned -1.8%* in October. For comparison the FTSE All-Share Index returned -1.4% and the IA UK All Companies sector average return was -0.3%.


October’s market losses were all incurred in the first few days of the month, as soft global macroeconomic data hit sentiment. The US Institute of Supply Management’s factory index hit a decade low, IHS Markit’s euro area manufacturing index dropped to the lowest level since 2012, and the World Trade Organisation cut its 2019 trade growth forecasts from 2.6% to 1.2%.


Markets rallied through the remainder of the month on the prospect of a further tranche of monetary stimulus. The European Central Bank announced the revival of its quantitative easing programme and the US Federal Reserve enacted its third rate cut of the year.


The UK market failed to regain its starting position despite the additional fillip of some rare Brexit progress. Boris Johnson secured parliament’s approval for his latest deal, but failed in attempts to have it implemented by 31 October – instead being forced to request a three month extension from the EU. In response, he called a general election for 12 December.


With sterling rallying 3.4% (trade-weighted basis) on Brexit developments, the internationally diverse earnings of the FTSE 100 saw it lose 1.9% over the month while the typically more domestic facing FTSE 250, FTSE Small Cap and FTSE AIM All-Share rose 0.6%, 0.1% and 2.1% respectively. FTSE 100 businesses with large overseas footprints featured among the Fund’s largest detractors for the month: British American Tobacco (-8.5%), Pearson (-7.6%), Royal Dutch Shell (-7.4%), Reckitt Benckiser (-6.0%), BP (-5.1%), Diageo (-5.1%), Unilever (-4.7%), etc.


A Q3 trading statement, which included the announcement of an orderly exit from its international operations, helped lift shares in Domino’s Pizza Group (+12.2%). The underwhelming performance of its international division has weighed on the outlook for the business for some time. During Q3, the division registered a sales drop of 2.7%, although growth of 3.9% in its much larger UK and Republic of Ireland store network drove a solid overall total sales increase of 3.4%.


While Domino’s retreats from international markets, WH Smith (+10.1%) plans to take a big step into the US market with a £312m cash acquisition of Marshall Retail Group. Marshall Retail owns 170 convenience stores in North America, 59 of which are in airports. The deal offers WH Smith an opportunity to further expand its Travel division of stores in airports, railway stations and hospitals. Growth in this side of the business has been compensating for a gradual retrenchment of its High Street stores. This dynamic was illustrated in full year results released on the same day: Travel sales rose 3% like-for-like and 22% in total, while High Street sales shrunk by 2%. The purchase of Marshall Retail is to be partially financed by a share placing which raised gross proceeds of £155m.


Although Indivior (-19.4%) raised 2019 net revenue guidance to a US$750m-US$790m range, its shares fell on outlook comments. Its SUBOXONE film for treatment of opioid addiction has been under threat from legal issues and potential generic competition recently, but the erosion of sales has been slower than expected, allowing it to upgrade sales guidance for the second time this year. However, it has now also given notice that it will cease its own production of a generic version of the buprenorphine/naloxone sublingual film. This is because of new US legislation stating that the sales price achieved for SUBOXONE in US government channels would be based on the generic price point.


Shares in Hargreaves Lansdown (-14.8%) have come under pressure since the suspension of the Woodford Equity Income Fund, which was a constituent of Hargreaves Wealth 50 list and a holding in some of its Multi-Manager funds. While this will cause some reputational damage to Hargreaves Lansdown, a trading update released in October shows that underlying trading has been solid. In the quarter to 30 September, it recorded net new business of £1.7bn as its client base rose by 35,000. Although it recognises that new business was supressed by Brexit and political uncertainty, its total assets under administration still rose 2.5% to £102bn over the quarter.


Reckitt Benckiser (-6.0%) described its Q3 performance as disappointing. Like-for-like sales growth amounted to 1.6%, as a 3% price/mix boost offset a 1% volume decline. This lower-than-expected growth resulted from a combination of market weakness in its health division and some internal operational disruption due to the company’s refocus. Reckitt has lowered its full year like-for-like net revenue growth target to 0%-2%, down from 2%-3% range at the interim stage and a 3%-4% target at the start of the year. It also expects operating margins to decline modestly.


Q3 growth for consumer goods peer Unilever (-4.7%) was better, with a 2.9% underlying increase being driven by 1.4% volume growth and a 1.5% price effect. Its outlook was also brighter, with the company confirming sales will be in the lower half of its 3%-5% medium-term range. Nevertheless, its shares slid as investors marked down consumer staples businesses in October.


Positive contributors included:

Domino’s Pizza Group (+12.2%), WH Smith (+10.1%), Rightmove (+9.3%), EMIS Group (+5.9%) and Smiths Group (+4.9%)


Negative contributors included:

Indivior (-19.4%), Hargreaves Lansdown (-14.8%), British American Tobacco (-8.5%), Pearson (-7.6%) and Royal Dutch Shell (-7.4%)


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








Liontrust UK Growth I Inc






FTSE All Share






IA UK All Companies













*Source: Financial Express, as at 31.10.2019, 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 30.09.2019, 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.


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, November 18, 2019, 10:42 AM