Liontrust UK Mid Cap Fund

Q3 2019 review

The Liontrust UK Mid Cap Fund returned -1.4% in the third quarter of 2019. By comparison, the FTSE All-Share and FTSE 250 ex-Investment Trust indices returned 1.3% and 3.3% respectively, while the IA UK All Companies sector average return was 1.0%. Since launch, the Fund has returned 328.7% and is ranked 20th out of 185 competitors in the peer group, where the average return is 193.8%.

Market overview


After a good first half of 2019, the broad UK market was flat over the quarter. The FTSE 100 was flat and gains in the FTSE 250 were offset by losses in the FTSE Small Cap index. However trade-weighted sterling was weak, falling over 3%, as concerns continued over the political impasse around Brexit and the associated potential cost to the UK domestic economy. Partly due to the weakness of the Small Cap index, the Fund underperformed its benchmark. We continue to believe it is more important than ever to concentrate on economic risk (i.e. capital preservation) rather than benchmark risk at this stage in the cycle, with wage pressure building and margin pressure potentially ensuing.


Portfolio attribution


The major drag on performance over the quarter again came from De La Rue, the currency and product authentication business. The company announced that an investigation had been opened into its conduct of business in South Sudan. Although it is hard to predict what effect this will have on De La Rue, we were glad to see the subsequent appointment of a well-respected chairman (Kevin Loosemore) to the board and believe that this is a strong statement of belief by someone who is already familiar with the business from years gone by. Whilst the shares have been poor performers, their market position and avenues for sustainable growth remain and the valuation is notably depressed. Amongst the strong relative performers was a new holding, Easyjet, which is very cheaply valued and potentially stands to gain from the unfortunate recent demise of Thomas Cook as well as the roll-out of the EasyJet Holidays package concept.




Our long-held concerns over the outlook for the UK domestic economy continued to be reflected in economic data. Whilst valuations in some domestic consumer cyclical companies are optically low, we remain underweight that area of the market. The Fund’s limited exposure to UK-focused companies primarily targets companies with structural earnings drivers and predictable earnings pipelines. 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.

We continue to focus on maximising risk-adjusted performance over the business cycle by way of our style agnostic approach, structuring the Fund around the three silos of economic recovery, structural growth and corporate turnarounds. While we are somewhat cautious of elevated valuations in the broad market, we believe that the current environment in selective mid- and small-caps creates unusually large opportunities for alpha generation.

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







Liontrust UK Mid Cap C Acc






FTSE 250 ex IT Index






IA UK All Companies













*Source: Morningstar as at 30.09.2019, on 17.10.2019.


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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.


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Wednesday, October 23, 2019, 8:33 AM