Liontrust Special Situations Fund

Key highlights

• Amid the ongoing relative drawdown for Quality stocks, there is growing recognition among market observers that valuations look too far disconnected from fundamentals.
• In addition to the re-rating potential from a Quality rebound, the Fund’s prospects are underpinned by 9% expected earnings growth across the portfolio and a dividend yield of 3%.
• AstraZeneca and Kainos moved higher in November on the strength of trading, but Rightmove slid on news of accelerated technology investment.

Performance 

The Liontrust Special Situations Fund returned -2.9%* in November. The FTSE All-Share Index comparator benchmark returned 0.4% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -0.7%.

Commentary

The Bank of England held interest rates at 4.0% and commented that market pricing for two further cuts was a reasonable prediction of its likely path as it approaches the end of an easing cycle. In the US, a deal was reached to end the extended government shutdown, but the main market action during the month was triggered by valuation concerns around the biggest AI plays. 

Despite this wobble among some of the global equity market’s largest stocks, the established trend of underperformance of the Quality factor extended in November. The drawdown in Quality’s relative performance is increasingly unprecedented in terms of its duration and depth, leading a growing number of market commentators to highlight the potential for an inflection. 

A recent study by Canaccord Genuity Quest found that the highest-scoring Quality stocks on the UK market underperformed the worst-ranking cohort for ten consecutive quarters from February 2022 through to May 2025. This is despite UK interest rates starting a cutting cycle from July 2024 – an environment that would usually favour Quality’s long duration earnings profile. 

As a result, the Fund’s portfolio of high-quality compounders trade at significant discounts to historical averages, yet their fundamentals remain attractive and updates on trading have been, on the whole, pleasingly robust given the uncertain macro environment. During the second half of the calendar year to date, 86% of the companies in the Fund have reported results either in line with or exceeding consensus expectations, reaffirming their trading resilience.

November’s batch of releases included AstraZeneca’s (+12%) solid set of Q3 results which maintained financial guidance for the full year. In the first nine months, the pharma group generated 11% revenue growth with core earnings per share up 15%. The growth was again driven by Oncology, its largest unit, where revenues rose 16%.

Kainos Group (+12%) built on September’s half-year trading update and guidance upgrade with a solid set of interim results. The outsourced provider of custom digital platforms and the Workday enterprise software suite saw strong sales performance across its divisions drive a 27% rise in bookings to £228 million. It now has a contracted order backlog of £397 million, which compares with revenues of £196 million (+7% year-on-year) in the half-year ending 30 September.

GlobalData (+7.8%) launched a £10 million share buyback programme, following on from £40 million of repurchases made in the first half of the year, and confirmed that it remains committed to a move of its share listing to London’s Main Market, with an update on timings scheduled for January. While this move has created an overhang on the shares in 2025 due to the loss of tax relief status, we expect this to be outweighed by the greater liquidity and investor interest likely to be found on the Main Market.

Rightmove (-18%) shares lost ground as it announced an accelerated investment programme in technology and AI. While current trading is in line with expectations and 2025 guidance is maintained, Rightmove has trimmed its operating profit growth target to 3% - 5% for 2026 as a result of the £18 million AI spend. The company expects the investment to yield a reacceleration in profits growth to 5% to 12% for the 2026 – 2028 investment phase overall, with over 12% per annum achievable by 2030.

Domino’s Pizza Group (-10%) has been facing weak consumer spending and a generally tough fast-food environment, which it expects to extend into 2026. Q3 system sales growth of 2.1% comprised a 1.5% fall in total orders offset by price increases. These trends are in line with recent updates from the company, and it has maintained full-year guidance for underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of £130 million to £140 million.

Next 15 Group’s (-28%) shares gave back October’s gains as disposal talks ended without a deal being reached.

We remain resolutely focused on the application of the investment process, ensuring that we manage portfolios in a consistent way which avoids style drift. The Fund retains its conviction in high-quality compounders despite the style factor being as out of favour as we can remember. Momentum remains heavily in favour of large-cap beneficiaries in traditional Value sectors such as banking, mining and tobacco but, as we approach year-end, a growing number of market commentators are observing the historic disconnect between Quality stocks’ robust fundamentals and their depressed valuations. 

Calling the timing of turning points in stock markets is difficult, and not something we as a team attempt to do.  When it arrives, a Quality rebound offers the prospect of a quite significant valuation re-rating; in the meantime, the Fund’s long-term total return prospects are underpinned by average forecast 12m forward earnings growth of 9% and a dividend yield of 3%. 

Positive contributors included:

AstraZeneca (+12%), Kainos Group (+12%), GlobalData (+7.8%), Quilter (+5.1%) and BP (+4.1%).

Negative contributors included:

Next 15 (-28%), Rightmove (-18%), Everplay (-11%), Domino’s Pizza Group (-10%) and RELX (-9.7%).

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

*Source: Financial Express, as at 30.11.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.09.25, total return (net of fees and income reinvested), bid-to-bid, primary class.