Liontrust Special Situations Fund

• The FTSE 100 hit record highs in January, driven by strong earnings in energy, industrials, and financials. Large caps outperformed, while mid and small caps lagged, weighing on the Fund’s performance.
• Spectris gained on strong trading and profit forecasts, while Everplay rose after a positive trading update and rebrand. Spirax benefited from optimism around Chinese stimulus.
• RWS reversed December’s gains despite AI-driven growth, while Focusrite struggled with weak macro conditions. Next 15 fell on lower profit guidance, and Gamma declined despite a major acquisition.

The Liontrust Special Situations Fund returned 2.7%* in January. The FTSE All-Share Index comparator benchmark returned 5.5% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 4.2%.

January was a month of strong stock market gains as the FTSE 100 surged to record highs, recording a 6.2% gain in the month. The rise was fuelled by strong corporate earnings, with the energy, industrials and financials sectors among the top contributors. Elsewhere, the mid-cap FTSE 250 returned +1.8%, and the FTSE All-Share returned +5.5%.

However, the gains were not evenly distributed across all segments of the market. While large-cap stocks outperformed, smaller capitalisation indices struggled. The Fund’s longstanding high conviction overweight to mid and small caps was a headwind to performance during the month as the FTSE AIM All-Share Index dipped slightly by -0.1%, and the FTSE Small Cap (ex-investment companies) Index fell by -1.2%.

Looking at stock-specifics, the top contributor over the month was Spectris (+21%) after the precision instrument marker announced that 2024 profit will be above consensus estimates following strong trading and execution in the fourth quarter.

Shares in everplay group (formerly Team17) rose (+22%) following a full-year trading update indicating that both revenue and adjusted EBITDA are expected to slightly exceed market expectations. The video game specialist, which also announced its rebrand, noted that strong performance in the second half of the year was driven by robust sales from new releases and a solid back catalogue, with momentum continuing into January after a strong Christmas trading period.

Spirax (+18%) was another standout performer, driven by renewed optimism surrounding Chinese stimulus efforts. As a specialist in niche industrial and commercial steam systems, over 10% of Spirax’s sales are into the Chinese market, which has been impacted by macro-economic weakness over the past year. Signs that Beijing may increase economic support have fuelled investor confidence in a potential rebound in demand.

Both RELX (+11%), the provider of information and analytics, and Weir Group (+11%), the engineering specialist, also rallied on broad based large cap strength and news of positive rating changes from covering analysts.

Turning to the detractors, intellectual property support services provider RWS Holdings (-19%) gave back most of its strong performance in December. Following a tough 2024, RWS has been confident in its ability to integrate AI into its portfolio of services, and full-year results show these products contributing to a return to growth in the second half of the year. Organic constant currency (OCC) revenue growth in the second six months was 2%, resulting in a flat performance for the year as a whole. Within this, around 25% of revenue came from AI-related services such as TrainAI and Language Weaver, a category which grew at 7% in OCC terms over the year.

Focusrite (-25%) shares continue to be under pressure as the audio products specialist grapples with a challenging macro-economic backdrop. At the end of January, the company released a trading update which, while it confirmed Focusrite is trading in line with expectations, nevertheless flagged a second half weighting to the current year’s results due to ongoing channel destocking.

Big Technologies' (-14%) shares also slid despite the release of a trading statement confirming that the company’s performance remains in line with expectations. Revenue for the year ending 31 December 2024 is expected to be £50.3 million, a decline from £55.2 million in 2023, due to the previously flagged loss of a customer in Colombia. The company continues to have significant balance sheet strength and optionality, with last-reported net cash of £93 million (around a quarter of the market cap).

Technology and data-driven growth consultancy specialist Next 15 (-14%) announced that it expected profits for the fiscal year ending 31 January 2025 to be at the lower end of analyst expectations, although new business wins had shown an encouraging uptick in the second half. The company also took steps to rebuild confidence in the equity story after the loss of a large contract last year. It announced the departure of the chief financial officer, a restructuring drive which aims to deliver annualised cost savings of £40 million, as well as selective increases in investment in AI products and services.

Gamma Communications (-13%), the provider of cloud-based enterprise communications, announced a €165 million cash acquisition of Starface, a company specialising in proprietary business communication and collaboration software for small and medium-sized enterprises (SMEs) in Germany. Starface boasts a nationwide distribution network with over 2,000 channel partners, which Gamma intends to leverage to expand its SME presence in this key market. Additionally, Gamma confirmed that it anticipates its financial performance to meet market expectations, reflecting strong year-on-year growth for the year ending 31 December 2024, driven by organic expansion and strategic acquisitions. Gamma is set to complete its move from the AIM market to the London Stock Exchange Main Market in Q2 of this year, a move befitting its size (current market cap £1.3 billion) and likely to herald its inclusion in the FTSE250 index at the next rebalance.

Positive contributors included:

everplay Group (formerly Team17, +22%), Spectris (+21%), Spirax Group (+18%), RELX (+11%) and Weir Group (+11%)

Negative contributors included:

Focusrite (-25%), RWS Holdings (-19%), Big Technologies (-14%), Next 15 Group (-14%) and Gamma Communications (-13%)

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

*Source: Financial Express, as at 31.01.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

• 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.
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