Liontrust GF UK Growth Fund

The Liontrust GF UK Growth Fund returned 2.6%* in July. The Fund’s comparator benchmark, the FTSE All-Share, returned 3.1%.

An eventful month of political developments failed to hold back the UK market, with investors focused on an equally busy period for company reporting and looking forward with increased confidence to upcoming interest rate cuts in the UK and US (the former being delivered in early August).

Enthusiasm around artificial intelligence suffered a moderate setback as earnings updates from some Magnificent Seven constituents underwhelmed, a trend which presented a big headwind to US markets and global indices. The UK’s lower exposure to this theme allowed it to sit among the world’s best performing major markets in June.

The Fund’s strongest riser was WH Smith (+18%) after the retailer issued a solid update on trading in the 13 weeks to 1 June. Over that period, it generated 4% like-for-like growth, once again driven by its travel division. While its legacy high street shops saw a further 1% like-for-like decline, WH Smith’s shift towards travel essentials continued with 5% like-for-like growth (and 8% overall, including new stores) in its network in rail stations, airports and hospitals. The company has reiterated its confidence in achieving financial targets for the year to 31 August.

British American Tobacco (BAT, +13%) is also in a transition phase as it manages the long-term decline of its tobacco products and grows its smokeless new categories such as vapes and heated tobacco products. While overall revenues dropped by just under 1% in adjusted organic terms in the first half of 2023, new categories rose 7.4% - albeit only accounting for 13% of the total currently. Shares in BAT rose as profitability marginally exceeded expectations; the company has maintained its full-year guidance.

In a Q2 trading update, Indivior (-14%) warned that its sales growth of its Sublocade opioid addiction treatment is being significantly constrained by the headwind of Medicaid patient disenrollments. There had previously been automatic Medicaid coverage renewals in place in the US as part of Covid emergency measures, but these have now lapsed. Sublocade now accounts for around two-thirds of Indivior’s sales; although it is still expected to grow by around 25% in 2024, this is down on the 35% expected as of its late-May trading update. As a consequence, Indivior’s 2024 net revenue guidance has been cut from a $1.24 billion – $1.33 billion range (c.18% year-on-year growth) to $1.15 billion - $1.22 billion.

BP (-3.4%) also slid after a Q2 trading statement announced an asset impairment of $1 billion – $ 2 billion relating to its previously announced review of a refinery in Germany. Comments on oil trading were also disappointing, with indications of a $0.5 billion – $0.7 billion headwind from lower realised refining margins. The shares recovered some of the lost ground after full Q2 results released late in the month exceeded revised expectations: underlying replacement cost profit was $2.76 billion, ahead of consensus forecasts of $2.54 billion, while it also announced plans for a $3.5 billion share buyback in the second half of the year.

Diageo (-2.8%) shares have suffered from downgrades to earnings expectations over the last year or two as investors have digested indications of soft consumer demand in the North American market. Full-year results released during July did nothing to dispel these concerns. While a challenging year was fully expected, with the spirits giant reporting a 1% organic fall in net sales, investors had hoped for a more upbeat outlook; however, Diageo warned that the tough trends have persisted into the start of its new financial year.

While Hargreaves Lansdown (-2.4%) issued a solid quarterly trading update, its investment outlook remains dominated by the possibility of a bid from a private equity consortium. In July, the consortium received an extension of its deadline to make a firm offer or formally walk away from 19 July to 5 August.

On the first day of August, the Bank of England cut interest rates by 25 basis points to 5.0%. Although increasingly priced into markets in the days and weeks prior to the decision, the cut is in our view another incremental positive in an improving outlook for UK equity markets.

The last few months have delivered stabilising inflation, a return to economic growth, a stable government, and now an interest rate reduction.

We feel that there is currently a compelling opportunity for investors in UK shares. The UK is at a clear valuation discount to historic averages and measures of intrinsic value but there is the potential for government policy intervention (focused on pension fund domestic equity allocations in particular) to help turn the tide of investor sentiment and capital flows.

Positive contributors included:

WH Smith (+18%), Savills (+15%), Moonpig (+14%), Coats Group (+13%) and British American Tobacco (+13%).

Negative contributors included:

Indivior (-14%), BP (-3.4%), Diageo (-2.8%), Hargreaves Lansdown (-2.4%) and BAE Systems (-1.7%).

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

*Source: Financial Express, as at 31.07.24, 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 30.06.2023, total return (net of fees and income reinvested), primary class. Discrete data is not available for ten full 12-month periods due to the launch date of the portfolio (03.09.14). Investment decisions should not be based on short-term performance.

Key Features of the Liontrust GF UK Growth Fund 

KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. The Fund may invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.

DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice.