Liontrust UK Focus Fund

The Liontrust UK Focus Fund returned 0.8% over the quarter, outperforming the -0.4% return from its comparator benchmark, the FTSE All Share Index, and the -1.3% average return from the Investment Association UK All Companies sector, also a comparator benchmark.*

UK equities declined slightly in the fourth quarter, with China-exposed stocks and AstraZeneca underperforming. However, this was partially offset by strong gains in the financial sector, led by HSBC, Barclays, and LSEG (London Stock Exchange Group). The newly elected Labour government delivered its first budget with a mixed impact expected on the UK retail sector in particular. Higher NICs will add cost pressure to labour intensive companies, which companies will look to offset with price rises and efficiency gains, to varying degrees.

From a sector perspective, overweight exposures to real estate and industrials contributed positively to returns, as did the underweight in materials. The underweight exposure to consumer staples was a drag on performance, as was the underweight in financials.

Positive stock attribution

The most significant stock contributor to relative performance was not owning AstraZeneca, the multinational pharmaceutical company. Weakness in the stock was driven by an investigation into the President of its Chinese division.

An overweight position in Rentokil, the pest control company, was the second leading contributor to the fund’s returns. The market responded positively to better-than-expected third quarter results and strategic announcements, boosting the stock's performance.

Negative stock attribution

The most significant detractor from relative performance was an underweight in HSBC. The bank delivered strong results, beating expectations, and announced a new $3 billion share buyback, which drove its stock higher.

The second-largest detractor was an overweight position in Kone, a high-quality engineering company. Kone's results were weaker than anticipated, as ongoing challenges in China continued to weigh on its performance.

Trading activity

We initiated new positions in Segro and National Grid and increased the position in Grainger in the quarter.

Segro is a leading owner, manager and developer of warehouses and industrial property. With high-quality assets strategically located in prime areas, Segro is well-positioned to benefit from structural trends, including the growing demand for data centres, which continue to drive long-term growth opportunities.

National Grid is a leading US and UK regulated utility, playing a critical role in the global energy transition. The company is exposed to the strong structural growth tailwind of electrification as a result of global moves to decarbonise, providing medium-term earnings visibility. We initiated the position following National Grid strengthening its balance sheet through a rights issue and a dividend cut, leaving it better equipped to capitalise on these trends over the medium term.

We added to the position in Grainger during the quarter. Grainger is a leader in the growing professional build to rent property sector. The supply-demand dynamic of this sector is attractive, with consistently strong demand for high quality rental properties, set against a supply side dominated by private rental landlords who are likely to struggle with new energy efficiency regulations.

We exited positions in Ashtead and trimmed positions in Diploma and 3i. Ashtead was sold due to falling conviction and concerns around the US outlook. Both Diploma and 3i were trimmed after strong performance; we retain our conviction in the underlying quality of these businesses.

Outlook

Across global markets, risks remain high with multiple volatile geopolitical situations and growth challenges. The re-election of Donald Trump also increases the risk of global trade wars. Closer to home we are considering the increase in employer National insurance rates following Labour’s budget, which are a headwind for the more domestically orientated holdings in the portfolio. It is important to consider the extent to which companies are able to offset the increase to their cost base through efficiency gains and price rises, and the impact these may have on employment in the more labour-intensive retail sector, and household available cashflow. Our focus remains on constructing a well-balanced, and diversified portfolio of advantaged businesses. Our confidence in the medium-term outlook for the portfolio comes from the excellent strategic, operational, and financial progress that the vast majority of the companies in the portfolio have made (and continue to make) over the last couple of years.

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

*Source: FE Analytics, as at 31.12.24, primary share class, total return, net of fees and income reinvested.

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.

■ 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.

The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

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DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It 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.

This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, 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. 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.