Liontrust GF UK Growth Fund

The Liontrust GF UK Growth Fund returned 1.6%* in June. The Fund’s comparator benchmark, the FTSE All-Share, returned 0.2%.

The UK equity market added modestly to this year’s strong gains as investors waited to see whether the inflationary forces emerging from the economic recovery are likely to prompt any action from central banks. The constant uncertainty on the public health front also remains, with much debate over the interaction of the spread of new Covid-19 strains such as the delta variant and the planned removal of social restrictions.

One asset class that did move decisively higher was commodities. As supply chains struggle to keep pace with resurgent demand, prices for energy, basic metals and agricultural commodities have all risen substantially this year. In June, Brent crude rose 8.4% to US$75.1 a barrel, aided by Opec’s decision to restrict supply increases.

The FTSE All-Share Index’s energy sector was one of the strongest in the month, rising 5.8%. The Fund benefitted via its holdings in energy majors BP (+2.9%), and Royal Dutch Shell (+9.0%) but its participation in the strength was diluted somewhat by poorer performances from industry engineers Petrofac (-17%) and John Wood Group (-10%).

A trading statement from Petrofac showed that its order backlog had dropped from US$5.0bn at the start of the year to US$4.0bn at 31 May. The fall came in its Engineering & Construction division. The pandemic has led to lower activity levels and the recent recovery in oil prices has yet to feed through to a significant increase in its clients’ capital spending. Meanwhile, John Wood Group’s interim update revealed a 21% like-for-like revenue decline on 2020 due to the impact of the pandemic. But the engineering group commented on a solid Q1 and improving momentum in Q2 while also maintaining its full-year guidance. However, some investors were disappointed that, with this description of Q2 momentum, the company’s order book had not increased by more than 6% (to US$6.9bn) over the six months.

Fund performance in June was boosted by takeover speculation regarding a couple of its holdings. WM Morrison Supermarkets (+40%) jumped after it confirmed a private equity conditional takeover offer of 230p per share had been received and rejected by its board in mid-June. Ultra Electronics (+11%) also rose on bid speculation. Private equity-owned aerospace and defence peer Cobham stated that it was exploring a combination with Ultra Electronics, with a takeover offer being one of the routes under consideration. By contrast, shares in Renishaw (-11%) slid on some concern that the company’s sale process may not achieve the high price initially hoped for when it was announced earlier this year.

Other notable corporate releases included a trading update from digital market specialist Next Fifteen Communications (+15%). This stated that an acceleration in growth had pushed performance ahead of its expectations. Revenues rose 21% year-on-year in the three months to 30 April – including 17% organic growth – and growth accelerated further at the start of Q2.

Currency headwinds weighed on RWS Holdings (-12%) as it issued interim results covering the six months to 31 March 2021. Although adjusted profit before tax for the six months was ahead of managements’ expectations (+53% to £51m), adverse currency trends are affecting the second half of its year. The translation and language services specialist generates a significant proportion of revenues in US dollars, but the dollar has weakened relative to sterling in recent weeks.

Positive contributors included:

WM Morrison Supermarkets (+40%), Next Fifteen Communications (+15%), Ultra Electronics (+11%), Royal Dutch Shell (+9.0%) and AstraZeneca (+7.9%).

Negative contributors included:

Petrofac (-17%), RWS Holdings (-12%), Renishaw (-11%), John Wood Group (-10%) and TP ICAP (-8.7%).

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

*Source: Financial Express, as at 30.06.2021, total return (net of fees and income reinvested), sterling terms, C3 institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 30.06.2021, total return (net of fees and income reinvested), primary class. Discrete data is not available for five full 12-month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

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.

DISCLAIMER

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.