Liontrust UK Growth Fund I Inc


April 2024
 
  • Opinion
    Square Mile rating
  • Performance
    3 years annualised returns
    7.80%
    % of time met performance objective over 5 years
    63.6%
  • Risks
    Risk of asset class
    1 2 3 4 5 6 7 8 9 10
    Risk of fund within asset class
    1 2 3 4 5
  • Costs
    Ongoing charges
    0.83%
    Transaction costs
    0.22%
    Total cost of investment
    1.05%
  • Responsible
    What type of investor are you?

Source: Square Mile and Refinitiv, Data as at: 31st March 2024.

Overview

The focus of the fund is on growing the capital value of investments over time through a portfolio of UK equities. Whilst equities can lose money over short to medium time periods, over longer time periods, and particularly over multiple investment cycles, equities, in aggregate, have proven to be an extremely successful way of accumulating capital.

 

Square Mile’s Expected Outcome

We believe that the fund should be able to outperform the FTSE All Share index by approximately 2% per annum over rolling five year periods.

Square Mile’s Opinion

This fund is the large cap iteration of the Economic Advantage process, created and developed by Anthony Cross and Julian Fosh, the co-managers of the strategy and co-heads of the Liontrust Economic Advantage team. Built and nurtured by Mr Cross and Mr Fosh, we hold this six strong team in high regard. Indeed, its members make full use of their extensive and complementary skills, combined with their innate understanding of the companies they seek, to produce high conviction and detailed output, in terms of their research and stock selection.

The team's ability to hunt out high quality and enduring companies is, in our eyes, one of the most compelling features of this strategy. Empowered by a well-considered, and clearly defined investment approach, to which they all wholeheartedly commit, the team members search for companies that they believe to have an irreplicable edge, which can be capitalised on to produce consistently attractive levels of return. This tends to mean that the managers invest in relatively steady businesses, which have the potential for growth, as well as the ability to generate high levels of cash. Given the fund's bias, these companies will generally be found in the FTSE 350 index, though we would highlight that the managers can, and will, hold up to 10% in smaller companies. In our opinion, this provides investors, especially those who are more market cap cautious, the opportunity to access the EA team and its formidable work, without having to take on significant exposure to the mid and smaller cap strategies that the managers are well known for.

It is important to note that this fund has a quality bias and that it can be structurally absent from certain sectors, so performance should be expected to deviate from the index at times. Pleasingly though, since taking over the mandate in March 2009, the managers have produced a strong performance record.

Fund Manager’s Formal Objective

The Fund aims to deliver capital growth over the long term (five years or more) and will invest at least 90% in companies which are incorporated, domiciled or conduct significant business in the United Kingdom (UK).

Capital Accumulation UK
Active FTSE All Share
Equity IA UK All Companies
2.12% £1,035 M
Anthony Cross, Julian Fosh, Matthew Tonge, Victoria Stevens February
- Annual
GBP 01/11/2010
- 31/12/2023
- -
- -

Source: Square Mile and Refinitiv, Data as at: 31st March 2024
 
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Liontrust UK Growth Fund I Inc
 
 

Asset Manager Overview

​Launched in 1995, Liontrust is a fund management company headquartered in London. The group currently has nine fund management teams, each with a distinct investment approach and running money independently, with support provided by Liontrust's marketing, sales, dealing, compliance and operations functions.

Fund Manager/Team Overview

This strategy falls under the remit of Liontrust's Economic Advantage team, which is led by Anthony Cross and Julian Fosh, the fund's co-managers. Mr Cross started his career at Schroders in 1991, where he initially worked as an equity analyst before moving to the Smaller Companies team. He moved to Liontrust in 1997, where he created the Economic Advantage approach that was first applied to the UK Smaller Companies fund in 1998, followed by the Special Situations fund in 2005, this fund in 2009 and the UK Micro Cap fund in 2016. Mr Fosh started his career in 1984 and joined Liontrust in 2008 from Saracen Fund Managers, where he was responsible for the Saracen UK Growth fund. Since joining, he has worked alongside Mr Cross to further develop the investment approach and as co-manager of the funds mentioned. We would note that, although both are co-managers of all the funds within their range, Mr Fosh tends to focus primarily on larger company analysis, whilst Mr Cross focuses more on medium and smaller sized companies.

In 2015 the managers were joined by Victoria Stevens and Matthew Tonge and in 2020 Alex Wedge and Natalie Bell, who joined in 2022 from the Stewardship team within Liontrust.

Investment Philosophy & Process Overview

The team's investment philosophy is based on the belief that companies which have a durable competitive edge will generate above average returns over the long term. For a company to have such an advantage, it needs to have one of the following three characteristics; intellectual property, a strong distribution network or a recurring revenue stream. These factors build the idea of a company having intangible assets, which may not be evident on its balance sheet but are vital components of its competitive advantage, as they are very difficult for others to replicate.

Often these factors tend to be self-reinforcing, thus generating sustainable growth and giving the business staying power. As a result, profits can remain at abnormally high levels for extended periods. Having identified promising companies, the team then analyses a firm's accounts to examine if its favourable competitive positioning has been successfully converted into above average profit generation. Companies that have no history of financial productivity are not pursued, whilst the team will also avoid companies that are exposed to factors out of their control, such as regulation or commodity prices. The managers will exit companies that either lose their edge or that fail to translate it into superior returns. Given the types of companies sought, the final portfolio is constructed without reference to the FTSE All Share index and will be made up of between 40-60 larger companies, though there can also be up to 10% in smaller companies.

 
 
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Liontrust UK Growth Fund I Inc
 
 

ESG Integration

Asset Manager ESG Integration

Liontrust has been a signatory of the UN Principles for Responsible Investment (PRI) since 2019 and was awarded a score of 4 (out of 5) for its investment & stewardship policy at its latest assessment. Although the firm's sustainable investment franchise headed by Peter Michaelis, has been a signatory for far longer, this is a reasonably recent initiative at the overall group, having aligned itself in 2018. That being said, over recent years Liontrust has made some good progress with its commitment to responsible investment (RI), particularly since the firm's acquisition of Majedie Asset Management, which brought with it the principles of Responsible Capitalism (RC) and a team of the same name headed by Cindy Rose.
 
The RC team is responsible for the oversight of stewardship and sustainability-orientated activities and initiatives. Given that each of the group's underlying investment teams is free to pursue its own investment approach, the RC team's role is to provide support and guidance and not to dictate how each team should incorporate environmental, social and governance (ESG) factors into its processes. There is an ESG framework in place as well as the availability of data and tools such as MSCI ESG but on the basis that the individual teams are accountable for their own processes, use of these is not compulsory. Voting is undertaken at the group level, however, most engagement activity takes place within the sustainable team, which has an active and targeted engagement policy. Outside of the sustainable team's activities, we think there remains scope for further improvement across the broader business. In addition to Majedie, Liontrust has made further acquisitions over the past few years (such as Architas and Neptune) and continues to incorporate these teams and into the broader business. As this progresses it should allow ESG integration and responsible practices to permeate more widely.
 
A good level of progress has been made at the group level over the past 12 months particularly with reporting, most notably with the production of the responsible capitalism report, which was published in Q1 2023 for calendar year 2022. In addition to the UN PRI, the firm is also a signatory to a number of other initiatives including the NZAMi (Net Zero Asset Mangers' initiative), the UKSIF (UK Sustainable Investment and Finance Association) and the CDP (Carbon Disclosure Project).

 

Fund ESG Integration

This fund is not currently managed using an extensive consideration of environmental, social & governance (ESG) factors, and so companies are not necessarily removed from the investment universe for failings on these grounds. However, it is an area of analysis which has been developed over time, for example, more recently the team introduced the analysis of ESG factors as an additional risk measure. Within this, companies are scored from AAA (ESG leaders) to CCC (ESG laggards), with the starting point for scoring being MSCI ESG Manager data, although the team do have autonomy to adjust scores through their qualitative overlay. Subsequently, if a company receives a BBB or lower score, it will incur a higher risk score, which will be taken into account when assessing the investment.

​Overall, the aim of this methodology is to capture threats to the portfolio holdings' profitability emanating from ESG-related factors. Whilst we understand this is a step in the right direction, it is primarily as a risk input into the team's investment thesis and therefore not integral to their investment approach, as the team can, and have, chosen to invest in companies that score lowly but where they see the potential for improvement.

Furthermore, we would note that as part of the process, an evaluation of a company's management team is essential and, for smaller companies, positions are only considered if at least 3% of the business is owned by company directors. Positions are sold if ownership falls below this level to ensure that there is a true alignment of interests between the company's management and its shareholders.
 
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Liontrust UK Growth Fund I Inc
 
 

Risk Summary

This fund invests in equities and so the main risk is that these, as higher risk assets, can be volatile investments. This fund also has up to 10% exposure to small companies, which can be more volatile than their larger sized peers. Though, the managers' focus on steady and reliable businesses should help to add a defensive nature to this strategy's performance profile when compared to the FTSE All Share index. However, it is important to note that this fund has a quality bias and can be structurally absent from certain sectors, so performance should be expected to deviate from the index at times.

 

Additional Information

7.80%
11.02%
-10.01%
9.36%
-6.87%
0.66
0.61

(3 years data to last month end unless otherwise stated)

Qualitative Risk Assessment

Significant Potentially Significant Not Significant

For the full summary of the risks, click here
 
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Liontrust UK Growth Fund I Inc
 
 

3 Year Rolling Sector Outperformance

Source: Square Mile and Refinitiv, Data as at: 18th April 2024. Share price total return.

  

Maximum Drawdown (Rolling 12 Months)

Source: Square Mile and Refinitiv, Data as at: 8th April 2024
 

Calendar Year Performance To Quarter End

Period Fund (%) Sector (%)
2023 4.7 7.2
2022 -1.1 -9.3
2021 21.0 17.1
2020 -8.3 -6.3
2019 19.9 22.4

Source: Square Mile and Refinitiv, Data as at: 28th April 2024

Value for Money

Both the fund's ongoing charge figure (OCF) and its transaction costs, which are associated with trading activity, are below the peer group median. This results in the fund's total cost of investment being very competitive. Consequently, we believe this strategy provides investors with good value for money especially when one considers the fund's highly laudable success rate (in terms of meeting its performance objective), as well as the very credible management team and investment approach applied.

In line with the MiFID II regulations, asset management firms are required to disclose all of the costs and charges related to the running and administration of their funds, which can include items outside of the OCF, such as research costs. Liontrust absorbs the costs associated with its research, which should slightly reduce the overall fee paid by investors.

OCF v Peer Group

0.83%
Transaction Costs v Peer Group

0.22%
TCI v Peer Group

1.05%

Source: Square Mile and Refinitiv, Data as at: 31st March 2024.
 
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Liontrust UK Growth Fund I Inc
 
 

Square Mile Analysts

David Holder - Senior Investment Research Analyst

Mark Hinton - Equity Fund Research Manager
 

The Square Mile ratings are reviewed every 6 months. For full details on the methodologies, click here.

For a full list of all Square Mile rated funds, click here.

Disclaimer

This document is issued by Square Mile Investment Consulting and Research Limited which is registered in England and Wales (08791142) and is a wholly owned subsidiary of Titan Wealth Holdings Limited (Registered Address: 101 Wigmore Street, London, W1U 1QU).

Unless otherwise agreed by Square Mile, this factsheet is only for internal use by the permitted recipients and shall not be published or be provided to any third parties. This factsheet is for the use of professional advisers and other regulated firms only and should not be relied upon by any other persons. It is published by, and remains the copyright of, Square Mile Investment Consulting and Research Ltd (“SM”). SM makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SM at the date of issue but may be subject to change without reference or notification to you. SM does not offer investment advice or make recommendations regarding investments and nothing in this factsheet shall be deemed to constitute financial or investment advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act 2000. This factsheet shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SM shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SM does not accept any responsibility for errors, inaccuracies, omissions, or any inconsistencies herein. Unless indicated, all figures are sourced by Lipper, a Refinitiv Company (all rights reserved). Past performance is not a guide to future returns.

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