LIONTRUST UK MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

Transcription

1 LIONTRUST UK Growth FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012 Managed by Anthony Cross & Julian Fosh in accordance with The Liontrust Economic Advantage

2 THE LIONTRUST ECONOMIC ADVANTAGE LIONTRUST UK GROWTH FUND IS MANAGED BY AnTHOnY CROSS AND JULIAn FOSH IN ACCORDANCE WITH THEIR INVESTMENT PROCESS FOR UK EQUITY PORTFOLIOS, THE LIOnTRUST ECOnOMIC ADVAnTAGE.. This unit trust is managed to produce long-term capital growth using a disciplined investment approach which aims to identify UK companies whose competitive strengths ( Economic Advantage ) allow them to sustain a higher than average level of profitability for longer than expected. Economic Advantage is the collection of distinctive characteristics of a company that competitors struggle to reproduce. These assets deliver pricing power, protect margins, and thus drive sustained profitability. The market rewards excess profitability, particularly when it is higher than consensus expectations. The Fund invests in a portfolio of competitive UK companies which we believe will surprise the market with the profits growth.

3 MANAGER S INVESTMENT REPORT The Market Although the Eurozone crisis was never far from the forefront of investors minds throughout the period, the FTSE All-Share Index ended a volatile year up 12.3% - an impressive return given the circumstances. Markets rallied into the New Year as investors, buoyed by improving economic data in the US and to a lesser extent in Europe, anticipated recovery. The intervention of the ECB to ease sovereign and bank funding issues in January, and further positive economic data and falling interest rates on risky European debt in February combined to drive the market up 7%. A deterioration in economic data and renewed Eurozone worries then ushered in several months of falling share prices, with concerns over Spain to the fore in March, April bringing the news that the UK had slipped back into recession and May seeing a dramatic monthly fall of 6.8% as fears of a global economic slowdown began to take hold. The election in June of a Greek coalition with a stated commitment to remaining part of the Eurozone, and a European summit resolution to increase support to ailing banks, were sufficient to halt the market s decline. A pivotal moment came in late July when ECB President Mario Draghi publicly pledged to do whatever it takes to preserve the Euro. Thereafter the Index continued to move upwards, shrugging off a downwards revision to US GDP and further evidence of a slowing Chinese economy to rise 8.7% over the second half of the year as a risk on mentality took hold, prompting a rally in cyclical stocks. Smaller companies (as measured by the FTSE Small Cap ex IT Index) were particular beneficiaries of this renewed confidence, rising by 36.3%, almost three times greater than the rise in the FTSE All-Share Index, over the full year. The Fund Against this volatile background the Fund performed well versus its benchmark, the FTSE All-Share Index, producing a positive return of 13.7%. It did however lag the All Companies sector average return of 15.1%, as our investment process- which emphasizes quality of earnings and balance sheet strength-faced increasing headwinds from the risk-on rally which gathered momentum particularly during the second half of the year. The process continues to deliver a portfolio of companies that have built barriers to competition through their intangible assets. All companies must possess Intellectual Property (IP), a strong distribution network or high recurring income. These assets are particularly difficult for competitors to replicate and therefore operate to sustain pricing power. We expect our companies to deliver strong financial returns as validation of their barriers to competition, using return on capital employed as a key metric. The Fund is predominantly invested in large and mid-cap companies, but will hold up to 10% of its assets in smaller (sub FTSE 350 Index) companies. To include such companies, we require (in addition to the criteria outlined above) that management owns at least 3% of the listed equity. We believe that the ownermanager culture that such ownership creates is an important driver of long-term shareholder returns. We also like the conservative attitude that such management tends to take towards debt and acquisitions. 1 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

4 MANAGER S INVESTMENT REPORT continued Similarly to the last two years, outperforming shares outnumbered underperformers more than two to one: of the 43 shares held throughout the entire period, 31 exceeded the benchmark index return and 12 shares fell short, suggesting that the outperformance was once again broadly based. The outperformers were in addition drawn from a diverse range of industries including financial services, media, consumer goods and industrials (engineering and electronic and electrical equipment), and included both smaller companies and companies exposed almost entirely to the UK economy. The top performer over the period was Renishaw (+111.7%), continuing its impressive rehabilitation powered by buoyant sales to China. Hargreaves Lansdown (+65%) shrugged off concerns over RDR as profits and assets under management moved ahead relentlessly. Aegis (+64.9%) rose strongly following a takeover bid from Dentsu, Asia s biggest advertising agency, and Spectris (instrumentation and controls) rose 63.3% as it saw growth across all business segments. Paypoint, a top-performer in 2011 (as it was dramatically re-rated following the announcement of the National Lottery Commission s decision to reject Camelot s plan to offer competing services through its National Lottery terminals) was again amongst the topperformers this year, returning 55.6%. Intertek (quality and safety solutions) delivered strong growth in revenue and earnings, with a share price gain of 54.5%. Rotork (+34.6%) reported record order intake, revenue and profit, and small patent translation provider RWS (+41.8%) continued to make steady progress. Amongst larger companies Savills (48.8%), Halma (43.1%), Carpetright (41.7%) and Smiths Group (35.5%) also performed strongly. We had more big losers this year than last. The worst performer over the period was BG Group (-25.5%), which saw a sharp share price fall on announcing in October that production in 2013 was now expected to be flat compared with 2012: we added to the position on the basis that this share price reaction was disproportionate. Morrisons fell 15.8% as like-for-like sales growth came under increasing pressure, however the company remains highly profitable. Also weak was Shire (-15.35%), where we believe the underperformance largely reflected valuation concerns rather than anything more fundamental. Our only other big loser (20% or more behind the benchmark) was Aggreko (-12.8%) which warned in December that the particularly uncertain economic environment in many of its markets was likely to lead to group performance in 2013 being slightly lower than in Notwithstanding this, the company remains an exciting structural growth story. Set against our four big losers, therefore, we had in total thirteen big winners, all of which (bar Aegis) remain in the portfolio going forward. Turnover in the fund remains very low: No shares were removed from the portfolio during the year, but four were added: Emis Group, ICAP, Wood Group and Weir Group. During the year the existing positions to see the biggest increase in exposure were Diageo, Savills and Reed Elsevier and conversely the biggest reductions occurred in Royal Dutch/Shell, GlaxoSmithKline and BG Group. 2 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

5 MANAGER S INVESTMENT REPORT continued Outlook As we said last year, however difficult the macroeconomic environment is, or appears to be, there are always some companies which, because of their intrinsic strengths, are able to buck the prevailing trend and thrive. The Fund aims to continue to find and exploit such companies, wherever they may be. We are pleased that despite an extremely difficult economic backdrop last year, many of our companies proved able to do so. Despite the buoyancy with which stock markets have started 2013, excess levels of sovereign debt, and low growth expectations, remain an overriding concern. Already UK GDP has disappointed and a triple dip beckons: and although there is a sense in markets that the worst of the Eurozone crisis is behind us, this may yet prove optimistic. A Greek exit remains a possibility, Spain may still require an official bailout and there are some signs that weakness in the periphery may be spreading to the core (France and Germany). Further afield in the allimportant US, although the fiscal cliff has been negotiated - for now - the present economic evidence for recovery is best characterised as mixed, with a recent deterioration in overall broad economic indices (albeit with a slight improvement in the employment components). But there is, unfortunately, no compelling evidence of any sudden economic renaissance. competition and are frequently exposed to fastgrowing markets and/or are cash generative. The pricing power that our companies generally enjoy is proving to be very important in such trying times. Since inception the investment process has delivered strong absolute performance which has translated into attractive annualized returns. We look forward to maintaining this record. Anthony Cross & Julian Fosh Partners, Liontrust Investment Partners LLP February 2013 The manager s investment report, together with information on the authorised status of the Fund, the objectives of the Fund and the information on page 1, comprise the Manager s Report. Our process takes a long-term view, and this is reflected in low levels of stock turnover. We do not take macroeconomic bets but instead focus on the underlying strengths of each business. The companies have defendable barriers to 3 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

6 FUND PROFILE Investment Objective and Policy The investment objective of Liontrust UK Growth Fund is to provide long-term capital growth through a portfolio of mainly United Kingdom ( UK ) equities but with the option of investing part of the portfolio overseas. Although the Fund may invest in all economic sectors in all parts of the world, it is intended that it will currently invest primarily in securities in companies listed on the International Stock Exchange of the UK and Ireland. The Fund may also invest in shares issued by companies incorporated in any European Economic Area ( EEA ) Member State other than the UK which are listed on a recognised stock exchange of an EEA Member State. The Fund may also invest in transferable securities, money market instruments, warrants, cash and near cash and deposits. The Fund may also invest up to 10% of its property in units or shares in collective investment schemes. The Fund is permitted to use derivatives for the purposes of efficient portfolio management and for investment purposes. Investment Approach This unit trust is managed to produce long-term capital growth using a disciplined investment approach which aims to identify UK companies whose competitive strengths ( Economic Advantage ) allow them to sustain a higher than average level of profitability for longer than expected. Economic Advantage is the collection of distinctive characteristics of a company that competitors struggle to reproduce. These assets deliver pricing power, protect margins, and thus drive sustained profitability. The market rewards excess profitability, particularly when it is higher than consensus expectations. The Fund invests in a portfolio of competitive UK companies which we believe will surprise the market with the profits growth. 4 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

7 FUND PROFILE CONTINUED Risk Profile The Fund is invested exclusively in UK equities. It is invested in stocks throughout the FTSE All-Share Index, with no sector bias. The principal risks are those associated with stock market investments. Risk and Reward Profile The Risk disclosures are in accordance with CESR guidelines and are consistent with rating disclosed in the KIID. Lower Risk Typically lower rewards Higher Risk Typically higher rewards The indicator is based upon historical data and may not be relied upon to gauge the future risk profile of the Fund. The risk and reward indicator shown is not guaranteed and may shift over time. The lowest category (1) does not mean risk free. The Fund s risk and reward category has been calculated using the methodology set by the European Commission. It is based upon the rate by which the Fund s value has moved up and down in the past. The Fund is categorised 6 primarily for its exposure to securities (equity) of larger and smaller UK companies. The risk and reward indicator does not take into account the following Fund risks: That a company may fail thus reducing its value within the Fund. Any company which has high overseas earnings may carry a higher currency risk as for valuation purposes, local receipts may require conversion into the currency of the Fund, which is pounds sterling. The Fund will comprise both growth and value companies as appropriate. The Fund may, under certain circumstances, make use of derivative instruments but it is not intended that their use will materially affect volatility. 5 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

8 FUND PROFILE CONTINUED Ongoing Charges Figure (%) 31 st December st December 2011 Class I income units* 0.92% n/a Class A income units* 1.17% n/a Class R income units 1.68% n/a * I class launched 1 st November 2010 & A class launched 17 th December 2012 Fund Calendar Ex-dividend date Income payment date Accounting period ends 1 st January End of February 31 st December 6 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

9 PERFORMANCE Net Asset Values pence per unit 31 st December st December 2011 % Change Class I income units* % Class A income units* Class R income units % Distributions pence per unit 31 st December st December 2011 Class I income units* Class A income units* 0.00 Class R income units The Fund distributes income once per annum, at the end of February. The ex-dividend date is 1 st January each year. Income can be reinvested to purchase units at no initial charge. Total Return (%) 6 months 1 year 3 years 5 years Since manager inception** Liontrust UK Growth Fund FTSE All-Share Index Quartile Ranking Discrete Years Performance (%) To previous quarter, 12 months ending: Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Liontrust UK Growth Fund FTSE All-Share Index Up-to-date past performance information may be obtained from the Fund s most recent fact sheet, available on our website ( or by calling our Administration and Dealing team on Performance data source: Financial Express, total return, bid-to-bid basis as at Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally subscribed. The issue of units in the Fund may be subject to an initial charge, which is likely to have an impact on the realisable value of the investment, particularly in the short term. Equity investment should always be considered as long term. * I class launched 1 st November 2010 and A class launched 17 th December 2012 ** Anthony Cross and Julian Fosh took over management of the Fund on 25 th March LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

10 PORTFOLIO Top Ten Holdings As at 31 st December 2012 % As at 31 st December 2011 % Royal Dutch Shell B Shares 5.17 Royal Dutch Shell B Shares 7.13 GlaxoSmithKline 4.19 GlaxoSmithKline 5.66 Diageo 3.91 British American Tobacco 4.31 BP 3.61 BG 4.06 British American Tobacco 3.60 AstraZeneca 4.02 Unilever 3.48 BP 3.86 AstraZeneca 3.21 Unilever 3.32 PayPoint 2.80 Diageo 3.27 Compass 2.70 Compass 2.80 BG 2.68 Shire 2.71 Total Total Sector Weightings FTSE All-Share Index Liontrust UK Growth Fund 31 st December 2012 % 31 st December 2012 % 31 st December 2011 % Basic Materials Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Technology Telecommunications 5.65 Utilities Cash (including SSgA* cash deposits) * State Street Global Advisors LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

11 FURTHER INFORMATION Liontrust Asset Management Plc Liontrust provides portfolio management services in UK, European and Asian equities. These are managed on a long-only and long/short absolute return basis through unit trusts, individual savings accounts (ISAs), offshore funds and segregated institutional accounts. The Group currently manages 2.58 billion (as at 11 th January 2013). We market our investment products to professional investors, predominantly in the UK and Continental Europe. These include pension funds and other institutional investors, family offices, private banks, private client managers, multi-managers, stockbrokers and financial advisers. Some private clients, to whom no advice has been given, have chosen independently to invest with us. Price Publication Prices are no longer published in the Financial Times. Further Information, Report & Financial Statements Further information on the Fund and its portfolio, the Manager s Long Final and Interim Reports & Financial Statements and the Prospectus and Key Investor Information Document (KIID) are available free of charge from the Manager upon request, and from The Manager Liontrust Fund Partners LLP, 2 Savoy Court, London WC2R 0EZ. Administration & Dealing enquiries Facsimile admin@liontrust.co.uk Website Authorised and regulated by the Financial Services Authority. 9 LIONTRUST UK GROWTH FUND MANAGER S SHORT FINAL REPORT FOR THE YEAR ENDED 31 ST DECEMBER 2012

12 Liontrust fund partners llp 2 Savoy Court, London Wc2r 0ez Liontrust & Fund Enquiries +44 (0) Administration & Dealing Enquiries Administration & Dealing Facsimile Administration & Dealing admin@liontrust.co.uk info@liontrust.co.uk Authorised and regulated by the Financial Services Authority