- The portfolio delivered outperformance of the benchmark in November due to strong returns from Sage Group, Craneware and TP ICAP.
- Several of the Fund’s weakest performers over the month fell without announcing any update on trading to the market.
- Hargreaves Lansdown exits portfolio on completion of its acquisition; we added position in Convatec, the provider of medical products.
The Liontrust Special Situations Fund returned 2.6%* in November. The FTSE All-Share Index comparator benchmark returned 1.2% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 0.9%.
External influences played a significant role in shaping market dynamics over the month. Global volatility was sparked by the re-election of U.S. President Donald Trump, who announced new tariffs on imports from key trade partners, including a 25% tax on goods from Mexico and Canada and a 10% tariff on Chinese products.
UK equity markets experienced a largely positive month, with the FTSE 100 index recording a 2.6% gain, the mid-cap FTSE250 Index rising 2.1% and the FTSE All Share returning 2.5%. Among the smaller capitalisation indices however, the FTSE AIM All-Share Index dropped 0.4%, and the FTSE Small Cap (ex-investment companies) Index fell 0.6%.
The financials sector continued to buoy benchmark FTSE All Share index returns amid expectations of higher-for-longer interest rates globally. The banks subsector – where the Fund has zero exposure, due to its investment process – has been a standout performer over the year to date and continued to extend gains during November.
Despite this sectoral headwind for the Fund, the portfolio delivered outperformance of the benchmark in November due to strong returns from a number of core holdings. Sage Group (+35%) was the Fund’s top performer after the software company announced a resilient set of full year results, accompanied by a £400 million share buyback. Sage delivered double digit growth in underlying annualised recurring revenue (ARR), along with operating margin accretion and strong cash generation. The company expects organic revenue growth of 9% or more in fiscal 2025, along with continued margin improvement.
Craneware (+23%), the provider of pricing, costing and revenue integrity software for the US healthcare market, announced that the positive momentum experienced in FY24 has carried into the current financial year, bolstered by previous investments that continue to drive revenue and underlying earnings growth. The company stated it remains on track with current market expectations for the fiscal year ending 30 June 2025. It highlighted its robust balance sheet, high levels of recurring revenue, and strong cash flow.
Inter-dealer broker TP ICAP (+17%) announced a 10% rise in third-quarter revenue to a record £557 million for the three months ending 30th September, up from £512 million a year earlier. This growth was fuelled by strong performances in its Global Broking and Liquidnet segments. The Global Broking division saw a 9% increase in revenue, with its largest and most profitable franchise, Rates, achieving 14% growth amid recent interest rate volatility. The previously-announced strategic review of options to realise value from the group’s Parameta data and analytics division – which has been a significant catalyst for the shares over the year to date – continues to progress. Options on the table include a potential listing of the division in the United States, with TP ICAP retaining a majority stake.
Rotork (+11%), the manufacturer of industrial flow control equipment, released a trading update covering the four-month period ending October 27, reporting an 8% year-on-year increase in group order intake on an organic constant currency basis, with all three divisions—Oil & Gas, Chemical Process & Industrial (CPI), and Water & Power—contributing to this growth.
Turning to the detractors, several of the Fund’s weakest performers over the month fell without announcing any update on trading to the market. Team17 (-8.4%) shares slid following a sale of shares by the company’s founder, who stepped down from CEO to non-executive director last year. She retains a holding of 18.7% of the company post the sale. Shares in small cap recruiter Robert Walters (-7.5%) and FeverTree Drinks (-6.2%) exhibited weakness due to persistent investor anxiety around the fragility of the macroeconomic backdrop.
Impax Asset Management (-5.0%) faced financial challenges in 2024, with net outflows rising to £5.8 billion from £92 million in 2023. Despite this, AUM held fairly steady at £37.2 billion (versus £37.4 billion previously) due to investment returns. Revenue fell 4.7% to £170.1 million, adjusted operating profit dropped 9.3% to £52.7 million, and the operating margin narrowed to 31% from 32.6%.
Shifting focus from financial results to takeover developments, TI Fluid Systems (+13%), the automotive fluid systems manufacturer, saw its share price rise sharply following its acceptance of a £1 billion takeover bid from Canada’s ABC Technologies, backed by Apollo Global Management. Announced towards the end of the review period, the offer, endorsed by TI Fluid Systems' board, represented a 47% premium over the company's share price before ABC's interest became public.
Inbound M&A approaches for UK listed companies have occurred frequently over the past few years, due to the extremely depressed valuations of UK listed stocks compared to both other global stock markets and their own history. In addition to TI Fluid Systems, our position in Hargreaves Lansdown was exited in November ahead of the completion of its takeover by a private equity consortium. With the shares trading close to the acquisition terms and completion not expected to occur until next year, the fund managers opted to redeploy the capital elsewhere.
The Fund initiated a new FTSE100 position in Convatec during the month. Convatec is a provider of medical products designed to help patients manage chronic conditions, including advanced wound care dressings, ostomy care devices, continence care products and infusion sets for diabetic insulin pumps. The company exhibits strong barriers to competition in the form of its intellectual property, with high levels of patents, R&D innovation and category know-how. It also enjoys market leadership positions in its core categories and has a significant strength in distribution, providing products and services in almost 100 countries around the world from nine manufacturing locations. Meanwhile, although revenues are not technically contracted recurring, there is a high degree of repeatability of sales (>90%) due to the chronic nature of the conditions treated.
Positive contributors included:
Sage Group (+35%), Craneware (+23%), TP ICAP (+17%), TI Fluid Systems (+13%) and Rotork (+11%)
Negative contributors included:
Team17 (-8.4%), Robert Walters (-7.5%), FeverTree Drinks (-6.2%), Impax Asset Management (-5.0%) and AstraZeneca (-3.9%)
Discrete years' performance** (%) to previous quarter-end:
|
|
Sep-24 |
Sep-23 |
Sep-22 |
Sep-21 |
Sep-20 |
|
Liontrust Special Situations I Inc |
12.0% |
8.6% |
-16.0% |
27.6% |
-3.7% |
|
FTSE All Share |
13.4% |
13.8% |
-4.0% |
27.9% |
-16.6% |
|
IA UK All Companies |
14.2% |
12.8% |
-15.3% |
32.4% |
-12.8% |
|
Quartile |
4 |
4 |
3 |
3 |
1 |
*Source: Financial Express, as at 30.11.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.09.24, 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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