The Liontrust Special Situations Fund returned 2.9%* in July. The FTSE All-Share Index comparator benchmark returned 3.1% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 3.6%.
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 investment platform provider AJ Bell (+21%). A Q3 trading update revealed that customer numbers rose 5% over the quarter and 13% annually to 528,000. Assets under administration have risen 4% in the quarter and 20% over a year to £83.7 billion, following new inflows of £1.7 billion in Q3. Its direct customer business saw particularly strong customer growth of 7% in the quarter. AJ Bell attributed this to rising investor confidence in light of good recent stock market performance, a trend which has also driven higher levels of dealing activity, especially for international securities.
Alpha Group International (+15%) also rose in June. The company provides FX risk management and other banking services though two divisions: corporates and institutions (alternative investment managers in areas such as private equity, fund of funds, real estate and infrastructure). Despite what it describes as subdued activity in the institutional market, Alpha still managed to grow revenues by 16% to £64 million in the first half of the year. Alpha Group moved from the Alternative Investment Market (AIM) to the main market earlier this year and was included in the FTSE 250 mid-cap index for the first time in June.
Positive sentiment drove the majority of the portfolio’s holdings higher in July, allowing the Fund to record a solid gain for the month overall. Shares in Moonpig Group (+14%) extended their bounce after posting solid results in late June, while Savills (+15%) benefited from a more supportive interest rate backdrop.
However, there were also a handful of notable detractors, with some companies continuing to experience macroeconomic pressures within their end markets. Among these, Learning Technologies Group (-15%) slid after it outlined a currency headwind from a weak US dollar which has pushed revenues down to £248 million in the first half of 2024, below the £268 million achieved last year and lower than consensus forecasts for around £260 million. Additionally, the company continues to see pressure on its c.25% transactional revenues due to company caution with training budgets. Learning Technologies is partially insulated from this short-term pressure by 75% of revenues deriving from software-as-a-service or long-term services contracts.
A Q2 trading update from Robert Walters (-16%) showed a 12% constant currency fall in net fee income year-on-year, as the recruitment market continues to rebase following the post-pandemic spike in activity. The company commented that this dip in conditions is longer than it had expected, as macroeconomic turbulence and political uncertainty weighted on client and candidate confidence. Robert Walters now doesn’t expect a recovery until at least 2025.
Midwich Group (-10%) shares were another to drop after it issued an interim trading statement, although the tough UK market conditions described had already been flagged in a May update. The specialist on-trade audio-visual equipment distributor saw a 4% organic decline in UK & Ireland revenue, in line with the guidance given in May of a mid-single digit decline this year. Midwich has maintained its full-year adjusted operating profit targets, noting that further cost efficiencies will need to be delivered in the second half in order to meet them.
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:
AJ Bell (+21%), Savills (+15%), Alpha Group International (+15%), Coats Group (+15%) and Moonpig Group (+14%).
Negative contributors included:
Robert Walters (-16%), Learning Technologies (-15%), Fevertree Drinks (-15%), Big Technologies (-13%) and Midwich Group (-10%).
Discrete years' performance** (%) to previous quarter-end:
|
|
Jun-24 |
Jun-23 |
Jun-22 |
Jun-21 |
Jun-20 |
|
Liontrust Special Situations I Inc |
12.9% |
6.8% |
-11.0% |
24.6% |
-7.7% |
|
FTSE All Share |
13.0% |
7.9% |
1.6% |
21.5% |
-13.0% |
|
IA UK All Companies |
12.6% |
6.2% |
-8.5% |
27.7% |
-11.0% |
|
Quartile |
3 |
3 |
3 |
3 |
2 |
*Source: Financial Express, as at 31.07.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.06.24, total return (net of fees and income reinvested), bid-to-bid, primary class.
† Julian Fosh is on a leave of absence. The Economic Advantage funds continue to be managed by the other members of the team in Julian’s absence.
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.
This Fund may have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the Fund's value than if it held a larger number of investments. 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. The Fund will invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. 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.
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