View the latest insights from the Economic Advantage team.
VIew NowPast performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
Key highlights
- Inbound M&A interest remained a feature for the Fund, with Alpha Group and JTC both receiving takeover interest.
- High-conviction portfolio bias towards mid and small caps and the quality growth style factor represented factor headwinds relative to FTSE All-Share during Q3.
- Kainos Group and Next 15 move higher following positive updates on trading.
Performance
The Liontrust GF Special Situations Fund returned -0.1%* in Q3. The Fund’s comparator benchmark, the FTSE All-Share, returned 6.9%.
Commentary
In Q3, global equity markets continued to recover from April’s tariff-triggered sell-off. While US trade policy remained a feature for market commentators, the agreement of deals with Japan and the EU helped boost sentiment and investors were increasingly willing to set the trade tariff saga aside and focus on corporate updates.
Equity market gains were aided by a US rate cut, which was increasingly priced into markets in the wake of data showing weaker than expected jobs creation. The Fed opted to cut by a quarter percentage point, its fourth cut since rates peaked in 2023, but the first in nine months. The Bank of England reduced interest rates by 25 basis points to 4%, its fifth cut in 18 months
The Fund’s underperformance against the FTSE All-Share Index was again driven at a high level by ongoing headwinds stemming from its long-term, high-conviction bias towards mid and small caps and the quality growth style factor, as well as sector exposures resulting from consistent application of the Economic Advantage investment process.
UK index performance was once again driven by large cap stocks, with the FTSE 100 rising 7.5% in total return terms, outperforming the mid-cap FTSE 250 (+2.7%), FTSE Small Cap ex-Investment Companies (-0.1%) and FTSE AIM All-Share (+2.0% at a headline level, but -2.5% excluding the natural resources sectors, Basic Materials & Energy).
As the Fund explicitly seeks to maintain between 20-30% in small cap / AIM-listed stocks and ~30% in mid-caps, the size factor represented a substantial headwind during the quarter.
The Fund’s sector exposure is an output of its highly active, stockpicking style, and results from the consistent implementation of the investment process. It has remained relatively consistent over time, with a significant overweight to industrials and technology versus the benchmark thanks to the sectors’ strong intellectual capital characteristics. By contrast, the fund managers have made a long-term, high-conviction decision not to invest in banks/insurance subsectors within financials due to the belief that historically they have proved themselves to be very poor compounders of capital, with low earnings quality given their elevated risk profile and inescapable dependence on interest rate movements which are outside of their control. Similarly, the Fund avoids miners due to their reliance on prices of tangible assets – a factor over which they have no influence– rather than the intangible assets the team believes can confer sustainable competitive advantage.
However, this stance represented an asset allocation headwind in Q3, with banks, insurance and basic materials all delivering a strong contribution to benchmark return during the quarter: collectively they represented +3.4% of the FTSE All Share’s +6.9% return.
The usual stock-specific factors also naturally contributed in both directions to performance during the quarter.
On the positive side, inbound M&A interest for the Fund’s holdings continued, with a confirmed takeover offer for Alpha Group International (+31%) at a 55% premium, as well as two rival private equity bidders emerging as potential acquirers of JTC (+56%).
2025 has been an extremely active year for M&A in the portfolio, with Spectris also agreeing to a takeover approach and GlobalData and Craneware receiving private equity interest earlier in the year.
As we have extensively commented in previous reviews, the elevated level of inbound M&A interest only serves to highlight the extraordinary current valuation opportunity thrown up by negative sentiment towards UK equities – an opportunity which is notably concentrated among mid and small caps, which have borne the brunt of selling pressure in recent years.
September is always a key month for trading updates across the portfolio, and it was pleasing to see a comfortable majority of such updates confirming positive trading for the companies in question. The trading resilience across the board was especially notable given that most companies updating were mid and small caps, which have suffered such significant share price underperformance of large caps during the year to date and in recent years.
Among this number were Kainos Group (+27%), the outsourced provider of custom digital platforms, which now expects revenues at the top end of consensus forecasts following an improvement in trading activity, and Next 15 Group (+41%), the growth consultancy business, whose interims confirmed trading in-line with full year expectations and showed good progress on the simplification of the underlying portfolio under new management.
On the negative side, there were macro-driven profit warnings from Auction Technology Group (-29%) and Domino's Pizza Group (-21%) while shares in Mortgage Advice Bureau (-18%), having enjoyed several months of share price strength in early summer, proved susceptible to weakening sentiment, likely catalysed by concerns that a slower pace of monetary policy easing may serve to dampen housing market activity in the short term.
Convatec (-19%) also weakened as two separate pressures related to US government focus on reducing America’s cost of healthcare combined to hit sentiment. Convatec is a provider of medical products designed to help patients manage chronic conditions, including advanced wound care dressings, ostomy care devices, continence care products and infusion sets for diabetic insulin pumps.
We remain confident in the longer-term prospects for Convatec, which exhibits strong barriers to competition in the form of its intellectual property, with high levels of patents, R&D innovation and category know-how. It also enjoys market leadership positions in its core categories and has a significant strength in distribution, providing products and services in almost 100 countries around the world from nine manufacturing locations. However, the regulatory uncertainty provides an overhang to sentiment in the short term.
In terms of portfolio activity, Alpha Group and Spectris both exited the portfolio during the quarter ahead of the completion of takeovers, with shares in both companies trading at narrow discounts to agreed terms. The takeover offer levels were at 55% and 96% premia to undisturbed share prices respectively – the latest clear signal of the latent value stored across many Fund holdings, and the UK stock market more generally.
The portfolio’s companies continue to display the key hallmarks of quality that have underpinned strong long-term alpha generation from portfolios managed by the Economic Advantage team.
Despite a prolonged period of underperformance of the Quality factor in recent years, the managers retain their high conviction in the ability of the portfolio’s companies – with high returns on invested capital, high margins, abundant free cash generation and strong balance sheet solvency – to outperform over the long term via consistent compounding of earnings growth.
Meanwhile, share prices across the portfolio are supported by modest valuations, both in comparison to global peers and their own long run average.
It is worth noting that the current exuberance in global stock markets (in particular in the US) and traditional Value sectors are belied by notable uncertainty across the global economy, from geopolitical conflicts and rising trade tensions to political upheaval and pressures on consumer spending.
Companies with strong Quality characteristics often prove their worth most clearly in times of elevated macroeconomic uncertainty, when resilient businesses with clear competitive advantage, pricing power and robust business models frequently demonstrate a superior ability to withstand exogenous shocks.
Taken together, these attributes give us the courage of conviction in the investment process and stylistic footprint that we believe stand the portfolio in good stead for future long-term outperformance.
Positive contributors included:
JTC (+56%), Alpha Group International (+31%), Renishaw (+25%) BP (+18%) and GSK (+14%).
Negative contributors included:
Auction Technology (-29%), Domino’s Pizza Group (-21%), ConvaTec Group (-19%), Mortgage Advice Bureau (-18%) and GlobalData (-16%).
Discrete years' performance** (%) to previous quarter-end:
Past performance does not predict future returns
| Sep-25 | Sep-24 | Sep-23 | Sep-22 | Sep-21 |
Liontrust GF Special Situations C3 Inst Acc GBP | -4.3% | 11.5% | 8.0% | -16.7% | 25.2% |
FTSE All Share | 16.2% | 13.4% | 13.8% | -4.0% | 27.9% |
| Sep-20 | Sep-19 | Sep-18 | Sep-17 | Sep-16 |
Liontrust GF Special Situations C3 Inst Acc GBP | -3.4% | 3.1% | 13.4% | 12.6% | 22.8% |
FTSE All Share | -16.6% | 2.7% | 5.9% | 11.9% | 16.8% |
*Source: Financial Express, as at 30.06.25, total return (net of fees and income reinvested), sterling terms, C3 institutional class. Non fund-related return data sourced from Bloomberg.
**Source: Financial Express, as at 30.06.25, total return (net of fees and income reinvested), primary class. Investment decisions should not be based on short-term performance.
Key Features of the Liontrust GF Special Situations Fund
The investment objective of the Fund is to provide long-term capital growth by investing in mainly UK equities using the Economic Advantage investment process. The Fund invests at least 80% in companies traded on the UK and Irish stock exchanges. The Fund is not restricted in choice of investment in terms of company size or sector. The Fund has both Hedged and Unhedged share classes available. The Hedged share classes use forward foreign exchange contracts to protect returns in the base currency of the Fund.
5 years or more.
4 (Please refer to the Fund KIID for further detail on how this is calculated)
Active
The Fund is considered to be actively managed in reference to the FTSE All Share Index (the “Benchmark”) by virtue of the fact that it uses the Benchmark for performance comparison purposes. The Benchmark is not used to define the portfolio composition of the Fund and the Fund may be wholly invested in securities which are not constituents of the benchmark.
Understand common financial words and termsSee our glossary
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.
- The Fund, may in certain circumstances, invest in derivatives but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.
- Credit Counterparty Risk: 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.
- Diversification Risk: the Fund is expected to invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
- Liquidity Risk: the Fund will invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the 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 the fund to defer or suspend redemptions of its shares.
- Smaller Companies Risk: 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.
- ESG Risk: there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
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.com 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.
