Liontrust UK Mid Cap Fund

Q1 2020 review

The Liontrust UK Mid Cap Fund returned -36.0%* over the first quarter of 2020. By comparison, the FTSE All-Share and FTSE 250 (excluding investment trusts) indices returned -25.1% and -33.7% respectively. The IA UK All Companies sector returned -27.9% for the quarter.

The Coronavirus pandemic was the obvious driver of poor equity market returns across the board in the first quarter. On a relative basis, large companies outperformed smaller companies as investors gravitated towards the perceived, relative, safety of familiar mega caps with easier access to emergency funding. The weakness of trade-weighted sterling, especially at the beginning of March, also drove relative strength in the FTSE 100 versus smaller companies. The FTSE Small Cap index slightly outperformed the Mid Cap Index over the quarter, which helped relative returns of the Fund given its exposure to larger companies within the Small Cap Index.

Recent quarters and years have witnessed significant investor concern around Brexit, politics and the UK mid-cap and small-cap market in particular. These concerns had already driven UK market valuations to significant discounts relative to other global markets. Coronavirus has further driven valuations down, creating significant opportunities in my view. In addition, markets in recent years have been characterised by low volatility and powerful momentum factors which increase the apparent attraction of market-cap based passive investment. An increase in volatility isn’t necessarily to be feared by valuation-conscious long-term investors – especially when it brings about low absolute and relative valuations as, I believe, is currently the case. Nonetheless, we remain vigilant regarding the potential for corporate margin pressure to build in coming years – whether in the form of increased wages, taxation or financing costs.

Strong relative performance over the quarter came from a long-term holding, Devro. Demand for its products (sausage skins) should be relatively unaffected by the virus pandemic. Vectura, the respiratory drug specialist, also performed relatively well as demand for its products may even be increased as a result of the pandemic. Its net cash balance sheet should also stand the company in good stead. Drags on performance over the quarter came from Elementis, the specialty chemicals company, and Senior, the industrial engineer. Both companies are exposed to cyclical end markets that stand to suffer if the virus pandemic continues for a prolonged period. The sudden nature of the economic shutdown has meant that many previously secure balance sheets are now less secure. In the circumstances, we were pleased to see both companies improve liquidity by not paying dividends.  Elementis also announced successful renegotiation of debt facilities and we are confident both companies will survive and thrive once the pandemic abates.

We remain confident in the prospects for selective UK mid- and small-cap companies, primarily because of attractive company-specific valuations but also due to the potential for further M&A activity. The Fund continues to make use of its ability to invest in large small-cap companies and we see exciting opportunities to invest in undervalued companies in this part of the market.  As discussed above, I am even more excited than usual by current opportunities for outperformance in selective mid- and small-caps in the UK.


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







Liontrust UK Mid Cap C Acc GBP






FTSE 250 (ex ITs) Index






IA UK All Companies













*Source: FE Analytics as at 31.03.20


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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. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.


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 21, 2020, 2:24 PM