Liontrust UK Focus Fund

The Liontrust UK Focus Fund returned 5.1% over the quarter, outperforming the 3.7% return from its comparator benchmark, the FTSE All Share Index, and the 3.8% average return from the IA UK All Companies sector, also a comparator benchmark.*

The UK market delivered a strong performance during the second quarter that was driven by large market constituents, including AstraZeneca, HSBC, Shell and Unilever. M&A interest in UK assets also featured strongly, with bids across the size spectrum for Anglo American (rejected), Hargreaves Lansdown, Darktrace, and Britvic. Market expectations have shifted over the quarter to assume fewer base rate cuts by the end of the year by the Bank of England, which held rates at the latest June meeting.

From a sector perspective, an underweight exposure to financials and an overweight in technology added to performance, while an underweight in healthcare and no holdings in basic materials weighed the most on relative performance.

Positive stock attribution

The most significant stock contributor to relative performance was an overweight position in AJ Bell, the investment platform. Its results beat expectations and its guidance for the full year was raised.

An overweight position in Diploma, the value-add distributor, was the second leading contributor to the fund’s returns as the company increased organic growth guidance for the year and continues to deliver attractive compounding returns to shareholders.

Other significant positive contributors to relative performance included not holding Diageo, the multi-national beverages company, and overweight positions in Verisk Analytics, the leading insurance-focused data analytics provider, and Auto Trader, the online marketplace.

Negative stock attribution

The most significant stock detractor from relative performance was an overweight in Spirax, the engineering company, followed by holding neither pharmaceutical multinational AstraZeneca nor HSBC bank.

Spirax underperformed as guidance was increasingly seen as tough to achieve. AstraZeneca outperformed after outlining above-consensus revenue growth at an investor day, while HSBC outperformed following better than expected results across its business lines and return of capital from the sale of the Canadian business.

Trading activity

Our most significant transactions included topping up Whitbread to take advantage of share price weakness from near-term revpar weakness in the UK while we think the valuation does not account for both the future inflection in German profitability and the incremental returns from the recently announced food and beverage restructure.

During the quarter we purchased a new position in Halma, the leading industrials business exposed to structural growth dynamics, such as increasing demand for healthcare, climate change, and improving safety and efficiency. Halma has a high-return and cash-generative business model, reinvesting free cash flow into bolt-on M&A. Halma operates with a devolved structure, and has an excellent track record of execution.

We trimmed positions in Ashtead and NatWest during the quarter. NatWest has performed very strongly year to date against the backdrop of full-year guidance that is viewed as conservative, future earnings support from the structural hedge, and a UK consumer and mortgage environment that appears to be improving. The position in Ashtead has been trimmed following several weak updates, with guidance for US rental revenue growth downgraded.

Outlook

Following a historic win for the UK Labour Party in the recent UK General Election that gave it a sizeable majority, we anticipate a period of relative stability for the UK, both relative to recent history (fifth prime minister in five years) and relative to the US and Europe – in particular France – which are facing their own electoral challenges.  While there is usually a gap of varying widths between what a political party promises in a manifesto and what it can deliver in government, the Labour victory should see a meaningful reduction in the political uncertainty risk premium that has been attached to UK assets for several years. As we enter this next period, we retain our focus on identifying businesses that can deliver whatever the economic and political weather. We select companies with strong or improving market positions and that possess the agility to adapt to likely uncertainty and volatility in the prevailing economic environment. Many world class businesses in the UK equity market are trading on highly attractive valuations, which we believe compensate for some of these external risks.

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

*Source: FE Analytics, as at 30.06.24, primary share class, total return, net of fees and income reinvested

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.

Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. 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 invest in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short 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. 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. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.