Liontrust UK Equity Fund

The Liontrust UK Equity Fund returned 2.3% over the quarter, matching the 2.3% return from its comparator benchmark, the FTSE All Share Index, and the 2.3% average return from the IA UK All Companies sector, also a comparator benchmark.*

The UK market performed solidly during the third quarter, with UK consumer-exposed names such as Marks & Spencer Group, Kingfisher, and JD Sports all performing strongly. Notwithstanding a recent decline in UK consumer confidence in September owing to uncertainty around the upcoming budget of the newly elected Labour party, we think UK consumers are in much better shape than a few years ago. Energy stocks underperformed during the quarter, with BP, Shell, and Centrica all seeing notable declines as oil prices have retraced.

The Bank of England once again held the bank base rate at 5% in the latest September meeting, however, BoE governor Andrew Bailey said interest rates were “now gradually on the path down”. There is an expectation of a rate cut in November.

Positive stock attribution

The most significant stock contributor to relative performance was an overweight position in Haleon. Haleon is a leading global consumer healthcare company, spun out from GSK two years ago. Haleon is delivering strong performance and healthy free cash flow generation and we are excited about its long-duration growth potential.

An overweight position in Baltic Classifieds, the leading online classifieds platform in eastern Europe, was the second leading contributor to the Fund’s relative performance. BCG delivered a strong set of results for FY24 and a strong growth outlook for FY25.

Other significant positive contributors to relative performance included an overweight in AJ Bell, the investment platform, and underweights in pharmaceutical company AstraZeneca and energy giant BP.

Negative stock attribution

The most significant stock detractor from relative performance was an overweight in Rentokil Initial, the pest control company, followed by an overweight in Spirax, a high-quality steam and fluids engineering company. Both are high quality business with strong long-term growth potential, and both have suffered, we believe, temporary setbacks in trading.

Rentokil is integrating its largest acquisition to date – the leading US termite company Terminix. This is a complex task and Rentokil’s focus on the integration has enabled competitor Rollins to gain market share, particularly with digital customer acquisition. The highly experienced Rentokil management team is implementing an improvement strategy, and we viewed the recent share price weakness as a good opportunity to increase the position in a company with attractive long-term growth potential after having been hampered by some short-term execution issues.

Spirax has similarly suffered from short-term cyclical headwinds related to its customers in the semiconductor industry, and destocking by another customer segment.

Trading activity

Our most significant transactions included a new position in Sage – a global leader in accounting software, and Grainger, a UK leader in the growing build-to-rent property sector. Sage has experienced a recent dip in organic revenue growth set against high expectations and its highest ever forward earnings multiple at 35x. This miss in growth led to a rerating towards a much more reasonable multiple at which we have initiated a position.  With consistently strong demand for rental properties, alongside new energy efficiency regulations coming into force, we think private rental landlords will struggle and operators like Grainger stand to benefit.

Outlook

In global markets, risks remain high with multiple volatile geopolitical situations, a highly polarised US election on the horizon, and lingering questions as to whether the recently announced stimulus measures in China will be sufficient to reignite growth. Closer to home, things appear more sanguine. While UK consumer confidence has taken a recent dip as consumers await the upcoming budget and expected changes to tax rules, in general, UK consumers are in much better shape compared to a few years ago. Political stability is likely to lead to a better environment for corporates to invest, and the first budget under the new Labour government should also provide much needed clarity for consumers. We are finding lots of opportunities to invest in high-quality businesses in the UK market at attractive valuations – both more UK-focused companies like Dunelm and Rightmove, and more global-focused UK-listed companies such as Haleon and Compass. While keeping an eye on the macro, we remain focused on bottom-up stock picking and constructing a well-balanced portfolio.

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

*Source: FE Analytics, as at 30.09.24, 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. 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.