Liontrust UK Growth Fund

• BAE Systems the top portfolio riser as aerospace & defence sector leads market on expectations of greater military spending in Europe.
• Healthcare holdings also strengthen as defensive areas fare well in February.
• Setbacks at Renishaw and Indivior drag on monthly performance.

The Liontrust UK Growth Fund returned -1.6%* in February. The FTSE All-Share Index comparator benchmark returned 1.3% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -0.6%.

Mounting geopolitical instability was reflected in aerospace & defence’s position at the top of the FTSE All-Share’s sector breakdown for February – up 18% in total return terms. President Trump’s approach to the Ukrainian conflict has included calling for a swift end to the war, criticising President Zelensky and indicating an unwillingness to continue financial and military assistance. As a result, investors are factoring in higher expectations of military spending in Europe from governments attempting to fill the void and deter Russian aggression.

Ongoing uncertainty over trade tariffs also contributed to macroeconomic nervousness. Equity markets sold off in the first days of February as Trump announced a range of tariffs on Canada and Mexico, only to defer them a couple of days later having won some concessions on matters including border security. This added to investor confusion over whether Trump’s tariff threats are statements of true intent or negotiating tools.

Within the Fund, the top riser was BAE Systems (+15%), rallying alongside global defence peers. The healthcare sector was another area of strength for the portfolio as defensive areas performed well. The release of full-year results sparked solid rallies at AstraZeneca (+7.0%), Haleon (+6.3%), GSK (+5.5%) and Convatec Group (+5.0%).

AstraZeneca recorded 25% constant currency growth in Q4 sales to take its 2024 total to over $ 54 billion – up by 21%. The performance was ahead of consensus expectations, driven by a 41% expansion in oncology sales. For 2025, AstraZeneca expects a high single-digit percentage increase in revenues, with earnings per share rising by a low double-digit percentage. It was a similar story of growth modestly beating expectations and solid forward guidance from Haleon, GSK and Convatec Group (the latter a recent new addition to the Fund).

Overall, however, when compared with the FTSE All-Share Index, the Fund faced similar headwinds to those present during much of 2024; namely, the outperformance of large-caps versus small and mid-caps, particularly among banks, a sector the Fund does not own. The banks sub-sector was the second strongest in February behind aerospace & defence, rising 11%.

We have previously written at length about the tough relative performance environment at the back end of last year, as well as the mounting potential for outperformance from some of the more unloved areas of the market as and when sentiment recovers and valuations revert towards long-term averages.

Compounding these negative attribution trends were a couple of stock-specific setbacks which tipped overall Fund performance into negative territory for the month.

Renishaw (-20%) has been contending with cyclical weakness in many of its industrial end markets. The specialist in high-tech precision engineering for metrology and healthcare commented in February’s half-year results that order intake has recently improved, but investors focused instead on a deterioration in quarterly sales. A slowdown in its second quarter meant that six-monthly sales rose only 3% year-on-year to £341 million, with profit before tax rising 2% to £57.5 million – both below expectations. Although Renishaw says it has seen improved order trends, particularly from semiconductor and consumer electronics customers, its 2025 guidance also fell short of investor expectations.

While the Fund’s healthcare exposure was a strong positive overall, it did include a sharp fall for Indivior’s (-27%) shares. The pharmaceutical group has recently been the subject of activist investor intervention, prompting a strategic refocusing around its core opioid use disorder (OUD) products and pipeline assets, as well as significant board and executive management change. 2024 results announced in February were ahead of previously downgraded consensus expectations but nevertheless included extremely cautious guidance for the current financial year, potentially heralding a welcome change in the company’s approach to forecasting.

Positive contributors included:

BAE Systems (+15%), AstraZeneca (+7.0%), Haleon (+6.3%), GSK (+5.5%) and Convatec Group (+5.0%).

Negative contributors included:

Indivior (-27%), Renishaw (-20%), Sage Group (-11%), Spirax Group (-10%) and Diageo (-9.2%).

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

*Source: Financial Express, as at 28.02.25, 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 Funds managed by the Economic Advantage team:

• May invest in smaller companies and may invest a small proportion (less than 10%) in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, a 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 a fund to defer or suspend redemptions of its shares. 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.
• 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.
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