Liontrust UK Growth 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 rose on strong profit forecasts, while Smiths Group gained after announcing a strategic restructuring and £500 million buyback.
• RWS fell despite AI-driven growth, while Gamma (-13%) and Brooks Macdonald (-12%) declined despite solid expansion plans.

The Liontrust UK Growth Fund returned 5.2%* 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 overweight to mid and small caps was a marginal headwind to performance versus the FTSE All-Share 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.

Smiths Group (+20%), the diversified engineering business, has announced plans to streamline its operations by concentrating on high-performance industrial technologies while divesting non-core business units. The decision, which came shortly after the publication of an activist shareholder letter calling for a reconsideration of group structure, will see the company retain and expand its John Crane and Flex-Tek divisions, which specialise in industrial flow and heat management technologies and represent approximately three quarters of group profits. As part of the restructuring, Smiths Interconnect, a producer of broadband and antenna components, is set to be sold by the end of 2025. Following this, Smiths Detection, known for its airport X-ray screening systems, will either be sold or spun off through a UK demerger.

Alongside these divestitures, Smiths is enhancing its share buyback program to £500 million, with £150 million scheduled for completion by March 2025 and the remaining £350 million by the end of the year.

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.

RELX (+11%), the provider of information and analytics, and Halma (+13%), health and safety sensor technology specialist, also rallied on 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.

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.

In its latest trading update, asset manager Brooks Macdonald (-12%) reported its strongest quarter for gross inflows in the past 18 months, despite net flows falling slightly short of analysts’ expectations. During the three months ending 31 December, the company recorded £579 million in gross inflows, while gross outflows reached £730 million, resulting in net outflows of £151 million. However, investment performance contributed an additional £200 million, bringing total funds under management to £17.9 billion by the end of the period.

Additionally, Brooks Macdonald also announced plans to transition from AIM to the London Stock Exchange’s Main Market in a bid to elevate its corporate profile and drive growth. The company stated that the move would enhance its corporate profile and allow it to access a larger pool of potential investors.

Positive contributors included:

Spectris (+21%), Smiths Group (+20%), Spirax Group (+18%), Halma (+13%) and RELX (+11%)

Negative contributors included:

RWS Holdings (-19%), Next 15 Group (-14%), Gamma Communications (-13%), Brooks Macdonald (-12%) and   YouGov (-7.0%)

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.

• 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.
• 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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