Fund managers often employ a particular style or philosophy in building their portfolio. They may prefer companies of a certain size, or exclusively invest in specific industries. Many of the best managers are those with the most distinct investment style, differentiating themselves from others. However, there will be times when a manager's style does not suit the prevailing environment. This should be regarded as part and parcel of long-term investing, but it can lead to periods of average or under performance.
This has been the case for Julian Fosh and Anthony Cross, managers of the Liontrust Special Situations Fund. Although the long term performance of the fund has been good, over the past two and a half years the fund has narrowly underperformed the IA UK All Companies sector, and the FTSE All-Share due to the distinctive style they employ. It returned 34.5%, compared with 35.3% from the FTSE All-Share index and 42.4%* from the average fund in the IA UK All Companies sector. Please remember past performance is not a guide to future returns.
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|Liontrust Special Situations||34.01%||15.64%||19.10%||13.81%||6.09%|
|IA UK All Companies||18.54%||0.76%||13.90%||17.71%||5.35%|
|FTSE All-Share TR||14.83%||3.42%||13.26%||11.20%||7.15%|
Past performance is not a guide to future returns. Source: Lipper IM * to 2/03/2015
Julian Fosh and Anthony Cross focus on companies in strong market positions. These companies must possess valuable intellectual property, strong distribution networks or consistent, recurring income. Intangible assets are also preferred, including valuable brands or strong company culture. This concentrated fund has the flexibility to invest across the entire UK stock market in companies of all sizes including higher-risk smaller companies.
As a result, the fund consists of high-quality companies; those which consistently generate and grow earnings. Conversely, the managers avoid companies in 'cyclical' industries, where performance is directly related to prevailing economic conditions. With the UK economy bouncing back, cyclical stocks have performed strongly since mid-2012 and this is why the fund has lagged its peers.
The managers retain confidence in their approach and added three new holdings in 2014; each meeting their strict criteria. Among these was AA, which floated in June. Through its fleet of vehicles the company has a strong distribution network. Added to this, it has historically derived approximately 80% of its revenue from recurring income. Oil Services Company Plexus was bought early in the year for its intellectual property. The company has developed innovative technology in oil drilling, an area of high demand following the BP oil spill in 2010.
Our view on this fund
Since launch in November 2005, performance of the Liontrust Special Situations Fund has been excellent. Indeed, over that period, it was the fourth-best performing fund in the IA UK All Companies sector; although please remember past performance is not necessarily a guide to future returns.
Performance over the past few years has been less impressive, but we understand and accept the reasons for this. Every investment style will be out-of-favour at times, and we remain confident in the managers' ability to deliver over the long term. For this reason, the fund remains part of the Wealth 150 list of our favourite funds across the major sectors.