Liontrust UK Ethical Fund

Key takeaways

The Fund underperformed in a market dominated by large-cap, value-oriented stocks, with banks in particular performing strongly

Helios Tower, Kainos Group and Spirax were among the top performers, while London Stock Exchange and Judges Scientific were among the largest detractors.

Performance

The Fund returned -3.0% over the quarter versus the IA UK All Companies sector average of 7.8% and the MSCI UK Index’s 3.1% (both of which are comparator benchmarks)*.

Commentary

The Fund underperformed in a market dominated by large-cap, value-oriented stocks, with banks in particular performing strongly. While the broader UK equity market has risen significantly, our mid- and small-cap holdings have not fully participated. A key factor has been the domestic bias of these companies, which have struggled amid ongoing economic weakness in the UK.

Despite this, we believe the UK market – especially the mid- and small-cap segments where we invest – remains attractively valued and offers compelling opportunities. Although economic momentum remains subdued, a shift towards lower interest rates could act as a catalyst to stimulate activity and support a recovery in portfolio performance.

Helios Towers (+23%) was the top performer after reporting robust financial performance for the first half of 2025, posting a 9% year-on-year increase in adjusted EBITDA and a $40 million rise in free cash flow. Revenue grew by 7%, driven by continued tenancy expansion, while operating profit rose by 1%. Exposed to our Connecting people theme, Helios Towers owns and operates telecommunications towers and telecom infrastructure across Africa, supporting wider, more reliable access to the services and benefits of mobile connectivity in underserved markets.

Kainos Group (+27%) delivered strong performance following an encouraging trading update that positioned the technology consulting and software development firm at the top end of market expectations. The company anticipates revenues for the fiscal year ending 31 March 2026, to reach the upper bound of consensus estimates. The positive outlook was fuelled by robust sales performance across its key divisions.

Held under our Leading ESG management theme, Kainos is technology consulting and software development business focused on Workday. Kainos helps organisations of all sectors modernise and digitise their operations – improving efficiency, customer experience, resilience, and digital security.

Spirax (+14%) delivered results ahead of expectations in the first half, driven by stronger margins and growth across key divisions. The industrial thermal energy and fluid technology group reported EBIT of £159 million, exceeding consensus forecasts. Held under our Improving the resource efficiency of industrial and agricultural processes Theme, Spirax reaffirmed its full-year guidance, projecting organic revenue growth ahead of global industrial production and further margin gains in the second half, supported by operational efficiencies and market recovery.

The largest detractor over the period was data service provider London Stock Exchange Group (LSEG, -20%),. LSEG supplies unique and essential datasets to financial market participants and remains well positioned to benefit from the long-term trend toward greater transparency and data-driven decision-making.

However, its share price weakness reflected investor concerns that its business model could face disruption from advances in artificial intelligence. Earnings estimates have continued to be upgraded over the last two years, yet the share price has fallen sharply of late despite no material change in underlying expectations. This move appears driven by a narrative that large language models (LLMs) could create competing data providers at a fraction of the cost.

We believe LSEG is far more than a “pure data” supplier, and that its products and services cannot be easily replicated by an LLM. While we acknowledge these risks and continue to monitor them closely, we believe the market may be underestimating the company’s ability to adapt. LSEG is deeply integrated into its clients’ workflows, and we view it as more likely that it will leverage AI to enhance its product offerings and efficiency rather than be displaced by it.

Similarly, shares in accounting and enterprise software specialist Sage (-12%) were impacted amid growing concerns over the competitive threat posed by AI. Exposed to our Enabling SMEs theme, Sage enables small and medium sized enterprises (SMEs) to manage their finances and comply with tax and other standards more effectively. We believe SMEs are the backbone of the economy, so enabling them to be more resilient and competitive with larger enterprises is a net benefit for society.

Judges Scientific (-29%) was also among the fallers after as a trading update in July warned that full-year profits are set to come in below expectations. The company cited difficult trading conditions in the United States and weaker government research funding as key factors weighing on performance.

Held under our Better monitoring of supply chains and quality control theme, thea specialist scientific instruments group reported a 7% rise in first-half revenue, driven in part by a major coring contract in Japan. However, underlying momentum was significantly softer, particularly in North America, where sales slumped by 20%.

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