The managers of investment fund Liontrust UK Equity are hoping to break out of a wretched performance streak by putting their faith in some of the country’s market leading companies.
The £879 million fund, previously known as Majedie UK Equity until this April, aims to outperform the FTSE All-Share Index over any five-year period. But it is currently not achieving its goal.
Over the past five years, the fund has registered a meagre overall return of 6.6 per cent, compared to a 20.2 per cent gain made by the index. Over the past five discrete one-year periods, it has underperformed the FTSE All-Share Index in three of them.
The fund is managed by the same investment team that ran it prior to investment house Majedie Asset Management being acquired by Liontrust earlier this year. Part of the four-man team is Chris Field who has had a hand on the fund’s tiller since it was launched more than 19 years ago. Field says the fund’s performance has been impaired by two ‘bad years’ – calendar years 2017 and 2019 – when it was ‘too defensively positioned’ with key holdings in telecoms and food retailers that failed to deliver satisfactory returns.
He also concedes that the fund has disappointed in the year to date, recording losses of nearly eight per cent while the FTSE AllShare Index has just managed to keep its head above water.
Field says the fund is underpinned by a strong investment theme that he refers to as ‘corporate Darwinism’. He says this theme, accentuated by the pandemic and lockdown, is resulting in tech savvy companies (with strong balance sheets) increasing their market share as industry players consolidate.
Such companies, he believes, have ‘a long runway of growth’ ahead of them, but are currently being undervalued by the market because of the cost-of-living crisis and supply chain issues.
‘This is frustrating,’ he says, ‘but fundamentals will win out.’ Field says some 70 per cent of UK Equity’s portfolio is in market leading companies.
For example, Ascential, a FTSE250 stock, is a top 10 fund holding. Field says it is a clear global leader in providing data for companies that can help them improve the way they do business. Yet, the stock market is failing to acknowledge Ascential’s strong industry position. Its share price is down 26 per cent this year to date.
Field draws comfort from the recent performance of two key fund holdings – shoes manufacturer Dr Martens and services contracting specialist Serco. Field says: ‘Dr Martens’ share price rose 20 per cent after the company released its results at the start of the month. This followed the share price more than halving since the start of the year despite the company trading well with no profits downgrades.
‘Similarly, Serco published an upbeat trading statement last month which propelled its share price to nearly 50 per cent above its March low.’ He adds: ‘As fund managers, we see an opportunity to capitalise from a market that is mispricing perfectly sound investments.’
The fund also has key stakes in market leading companies Tesco, drinks maker Fevertree and pest control business Rentokil.
Liontrust UK Equity has 158 holdings, but more than 50 per cent of the fund’s assets are in FTSE100 stocks such as oil giant Shell and bank NatWest.
The fund’s total annual charges are reasonable at 0.65 per cent and a small income is generated, currently around 1.8 per cent. The fund’s stock market identification code is B88NK73.
