Liontrust Sustainable Future UK Growth Fund

• After a strong finish to 2024 for the Fund, sentiment once again turned cautious towards the small and mid-sized businesses to which we have an overweight exposure.
• Natwest and Convatec move higher on the strength of Q4 trading, while Mortgage Advice Bureau rallies after unveiling ambitious medium-term growth targets.
• Trainline continued to report good European growth and penetration into UK e-ticketing, but the revival of Great British Railways by the Labour government is acting as an overhang.

The Fund returned -4.6%* over the quarter versus the IA UK All Companies sector average of 0.2% and the 6.4% return from the MSCI UK Index (both of which are comparator benchmarks).

Although the Fund delivered a strong finish to 2024 – outperforming both its benchmark and IA sector – it faced headwinds in the opening quarter of 2025. Despite a rise in UK equities over Q1, the gains were largely concentrated among larger companies. In contrast, sentiment toward UK small and mid-sized businesses remained cautious, reflecting persistent concerns over the UK’s economic outlook. This environment proved challenging for the Fund, which holds a significant overweight in this segment relative to its benchmark and peers. As a result, this positioning was a key contributor to the Fund’s underperformance during the three-month period.

The Fund’s top contributor was NatWest (+16%), after delivering stronger-than-expected fourth-quarter profit. The retail-focused bank, which is exposed to our Financing housing theme, reported income of £3.8 billion, up 8%, driven by strong net interest income. Net interest margin improved from 1.99% to 2.19%.

Pre-tax operating profit rose 19% to £1.5 billion, beating the £1.4 billion forecast, supported by top-line growth which outstripped a 5% increase in operating costs. Impairments came in better than expected at £66 million, with default rates remaining low. The CET1 ratio stood at 13.6%, within the group’s 13–14% target range.

Convatec (+16%), the manufacturer of medical devices for people living with and managing chronic disease and exposed to our Enabling healthier lifestyles theme, was another top performer. Convatec reported 7.7% organic revenue growth for the year, in line with its guidance range of 7.25-8.0%. Operating profit rose 23.7% to $325 million, with margins reaching 21.2%. Looking ahead, the company maintained its guidance for 5-7% organic revenue growth and expects another year of double-digit adjusted EPS growth.

Shares in Mortgage Advice Bureau (MAB, +23%) rose after the mortgage specialist unveiled new medium-term targets, a revised capital allocation framework, and a progressive dividend policy. Held under our Transparency in financial markets theme, MAB announced ambitions to double revenue from 2024 levels, achieve an adjusted pre-tax profit margin above 15%, exceed 100% cash conversion, and double its market share.

Moving on to the detractors, shares in Trainline (-37%) have had a volatile six months. In late 2024, Trainline posted positive upgrades to guidance due to good European growth and penetration into UK e-ticketing. In line with our theme making transport more efficient or safer, Trainline contributes to the modal shift towards rail by increasing convenience for consumers. However, the overhang of Great British Railways (GBR) brought back by the Labour Government remains, coupled with weaker US inbound tourists and slower liberalisation in France, all leading to poor performance at the FY25 trading update. Trainline posted 12% revenue growth over the year, with strong performance in Spain up 41%. Margins were better than expected, showing positive steps in profitability and cost savings. 

Having performed strongly through the second half of last year, review platform Trustpilot (-28%), gave back much of this performance in the first quarter of 2025. Shares in the company surged in January after saying that earnings were on track to exceed forecasts. However, the stock steadily declined throughout the remainder of the quarter, despite subsequently reporting strong trading performance in 2024.

Oxford Biomedica (-29%) was also among the poor performers. Oxford Biomedica is leading a business transformation to become a pure play contract development and manufacturing organisation (CDMO). With a new CFO joining second half 2024, management have been working on this transformation across the business. Oxford Biomedica are enabling innovation in healthcare by being built into cell and gene therapies (CGT). Despite order book growth of 30%, reiterating a good pipeline of investments into CGT, reported full-year 2024 revenues of £127 million to £129 million fell short of some of the more optimistic forecasts and landed at the lower end of the company’s guidance range. Further, refreshed guidance pushed down EBITDA estimates for the FY, leading to poor stock performance over Q1.

With regards to portfolio activity, we initiated positions in ARM and Howden Joinery, while exiting holdings in Learning Technology Group, Oxford Nanopore and GSK

Added under our Improving the efficiency of energy use theme, Arm develops intellectual property that bridges semiconductor hardware and the software controlling it. Its RISC (Reduced Instruction Set Computer) architecture is more energy-efficient than standard ISAs due to its simplified instruction set, reducing the complexity of computations.

Howden is the UK’s largest kitchen manufacturer with a vertically integrated trade-only business model. It has over 800 depots across the UK and accounts for over 40% of kitchen installation. Exposed to our Leading ESG management theme, Howden uses its scale advantages to drive sustainability in the supply chain in terms of timber and has industry leading employee and customer satisfaction rates. The company provides an example to others in the consumer sector in terms of managing its ESG impacts.

Learning Technologies was sold following its acquisition by private equity. While we voted against the take-private proposal at the Extraordinary General Meeting due to concerns over the opportunistic timing and low valuation, the proposal was ultimately approved. Oxford Nanopore was sold due to a lack of improving fundamentals, intensifying competitive pressures, and continued concerns around its strategic focus and cost discipline. Lastly, we sold GSK, driven by the availability of more compelling opportunities elsewhere in the portfolio and the company’s persistent long-term underperformance.