Liontrust UK Growth Fund

September 2018 review

The Liontrust UK Growth Fund returned -0.4%* in September, compared with the 0.7% return from the FTSE All-Share Index.


While trade tensions, Brexit negotiations and emerging market worries rumbled on, the macro trend with greatest direct impact on the Fund was the strength in oil prices. Brent crude hit a four year high of $82.7 a barrel after the decision by Opec – in conjunction with major non-Opec producers such as Russia – to maintain production levels rather than target increases.


The Fund’s sector holdings include BP (+7.7%), Royal Dutch Shell (+5.9%) and Wood Group (+7.4%). This collection of stocks made a strong positive contribution over the month.


However, a couple of instances of disappointing stock-specific newsflow contributed to the Fund registering a small negative return for the month.


Shares in Indivior (-31.9%) slid after it issued a business update including a 10%+ cut to its net revenue guidance range, which now stands at US$990m to US$1.2bn. Net income is now expected to be US$230m to US$255m. These forecasts assume that a US ban on generic competition to its Suboxone product from Dr Reddy’s Laboratories remains in place. They also factor in the successful implementation of US$55m in pre-tax cost cuts in 2018, as part of a plan to ‘streamline the organization’, higher than the US$25m targeted in June.

Despite commenting that it remains on course to deliver a FY2019 trading EBITDA (earnings before interest, tax, depreciation and amortisation) of £335m - £345m, shares in the AA (-13.0%) moved lower on the day of the release. Rather than focus on the maintenance of full-year guidance in the face of substantial headwinds in the first six months, investors instead chose to view the squeeze on interim profits from ‘extreme weather conditions’ – and the associated need to pay for third party garaging  to cope with volumes – as the latest setback at the company. We are more upbeat, viewing this as a factor which was out of the new management team’s control, and unrelated to the operational issues which had afflicted the previous management’s tenure.


During the month, we were able to deploy more of the cash position which had accrued this year due to the takeovers of several holdings. We added four new holdings in September: Coats, Sage, Synthomer and TI Fluid Systems.


Coats, the world’s leading manufacturer of industrial threads, has three divisions: Apparel & Footwear, Performance Materials and Crafts. As well as significant intellectual property, Coats has an excellent distribution network which extends to over 100 countries and 50 manufacturing sites.


Sage is a provider of accounting software to SMEs (small and medium-sized enterprises). In our view, it possesses all three of the Economic Advantage core intangible assets: intellectual property (via its software), distribution (though a software network which sits behind only Oracle and SAP for enterprise resource planning scale), and recurring income (78% in its most recent financial period). Although Sage faces competition in its core accounting market from new digital start-ups, we believe its intangible assets provide substantial barriers to competition.


Synthomer is a supplier of aqueous polymers for use in products such as coatings, textiles, paper and synthetic latex gloves. The company possesses intangible assets in the form of its intellectual property and a distribution network which comprises 25 production sites around the world.


Listed on the stock market last year, TI Fluid Systems is a leading global manufacturer of fluid storage, capture and delivery systems to the automotive sector. Examples of its products include the brake and fuel lines within a car, high pressure cooling systems, fuel tank systems and filler pipes. As with Coats, its Economic Advantage comes in the form of intellectual property and a strong distribution network. As a supplier to most of the world’s major auto original equipment manufacturers (OEMs), it has embedded customer relationships.

Positive contributors included:

BP (+7.7%), Wood Group (+7.4%), Reckitt Benckiser (+7.0%), RWS Holdings (+6.5%) and EMIS Group (+6.2%).


Negative contributors included:

Indivior (-31.9%), AA (-13.0%), Renishaw (-12.3%), Next Fifteen Communications (-7.7%) and Smiths Group (-7.2%).


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 30.09.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 30.09.2018, 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, October 15, 2018, 3:30 PM