Sustainability themes are central to the investment process, helping identify companies that make the world cleaner, healthier or safer. With 22 themes guiding idea generation, the team seeks long-term growth from positive environmental and social trends, investing only where strong fundamentals and attractive valuations also align.
Peter [00:00:11] After an encouraging second quarter, we were anticipating continued momentum through the third quarter. However, in the event, the fund lagged the MSCI UK and the peer group. The market was led by large cap value orientated stocks with banks in particular performing strongly. It has been a very peculiar period where large-cap companies have outstripped the mid-cap. Over the year for instance, the FTSE 100 has delivered nearly 18%, while the FTSE 250, the mid-cap index, has been more modest at just under 10%. Longer term though, the faster growing mid-cap sector has tended to outperform and we expect this to revert in time. We believe the UK and small-cap segments are very attractively valued while still offering strong growth.
Peter [00:01:04] This is where the UK Ethical Fund finds its best ideas. Those smaller companies that are growing while providing solutions to key challenges in health, environmental technology, and security. Kainos, the software consultancy, delivered strong performance following an encouraging trading update that positioned it at the top end of market expectations. Kainos has seen strong growth from its workday software products and also its work in increasing the shift to digital in the public sector. Helios Towers delivered strong financial returns, reinforcing the strength of its business model. It operates and builds new telecom towers in Africa and the Middle East. It's a beneficiary of the Connecting People theme. As they add mobile operators to each tower, so operational gearing comes through for the company.
Peter [00:02:01] On the negative side, we saw LSE Group, which suffered from the market sentiment that AI would challenge their business model. Our view is that specialist, regulated data providers such as LSE Group will be resilient and actually likely to be one of the beneficiaries of using AI to enhance their productivity. There was also disappointment from Judges Scientific. This provider of scientific research equipment and services suffered from disruption in spending in the US as the new administration adjusts budgets in health and climate science.
Peter [00:02:38] We focus on mid-cap quality growth companies that are benefiting from our diverse range of sustainable themes. Our analysis suggests that these will continue to deliver strong growth over the coming years, and yet companies linked to them are trading at significant valuation discounts to their historic average. For this reason we believe the long-term prospects of the strategy remain strong.
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.
The Funds managed by the Sustainable Investment team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that 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 a Fund.
- May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May 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. 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.
- May, under 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. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. 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. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Investment team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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.
