- Anthony Cross and Julian Fosh are experienced investors who we rate highly
- They have a robust investment process which has served investors well over the years
- Long-term returns have been boosted by the managers' astute stock picking
- The managers do not want the fund to grow significantly from here. It's therefore not suitable for consideration for the Wealth Shortlist
How does this fund fit in a portfolio?
The Liontrust Special Situations fund aims to grow your investment over the long run by investing in a portfolio of companies with unique advantages over the competition. It could be used to provide UK exposure within a broader global investment portfolio. A focus on high-quality companies means the fund could work well alongside other funds investing in unloved UK companies with recovery potential.
Anthony Cross and Julian Fosh are joint managers of the Liontrust Special Situations Fund. They've been at Liontrust for 23 and 12 years respectively, but both have three decades of experience analysing and investing in UK companies.
The duo also serve as co-managers on three other funds, but they all share the same investment process that underpins this one. Given the similarities in the way the four funds are managed, we think this is a reasonable workload.
The managers also benefit from the support of a knowledgeable team including small cap specialists Victoria Stevens, Matthew Tonge and Alex Wedge. Stevens and Tonge joined the team in 2015, and Wedge joined in March 2020, but the trio built up experience working at other firms too.
The fund managers think the secret to successful investing is to find the few companies with an 'economic advantage' – a sustainable edge over the competition that will allow them to earn above-average profits for the long-term.
The managers believe the hardest economic advantages to copy are intellectual property, such as patents and trademarks, strong distribution channels and significant repeat business. That's why a company must have at least one of these attributes before it's considered for the fund. Other less powerful but nonetheless important strengths include franchises and licenses, good customer relationships and a great company culture.
Once companies with a strong competitive edge have been identified, the managers look for proof that it's led to superior financial returns in the past. They also look for evidence of pricing power – the ability to increase prices without affecting demand for the company's product or service.
Finally, they consider the company's valuation. They compare each company's valuation on a variety of measures to try and avoid overpaying. However each investment is made with the long term in mind, so the managers believe the initial price paid is less important to overall returns than the company's ability to grow earnings and profits over the long term.
Recent investments include media business Future. The company specialises in taking print-based media publications and digitising the content to allow it to reach a wider range of audiences. It recently acquired a portfolio of well-known magazines, including Horse & Hound, Country Life and Homes & Gardens. The managers think the company has strong intellectual property, including its creative content, data and technology platform. It also has a strong distribution network. It's estimated that the company's content reaches one in three people in the UK and the US.
In contrast, an investment in roadside assistance business AA was sold from the portfolio. The company's share price has struggled in recent years as investors worried about its high levels of debt. The company's directors also own fewer shares than Cross and Fosh usually like to see.
The fund is fairly large in size and the managers don’t want it to grow significantly from here. That's why we're not currently considering it for the Wealth Shortlist. The Liontrust UK Growth fund, which features on the Wealth Shortlist, is managed using the same philosophy and process. The main difference between the two is that the UK Growth fund focuses more on larger companies. It's also a smaller, more nimble fund, which allows the managers to pounce on new opportunities as they arise.
The managers' freedom to invest in smaller companies and derivatives adds risk. The fund also holds shares in Hargreaves Lansdown Plc.
Liontrust gives managers the freedom to manage their portfolios according to their own investment and market views. The company simply asks managers not to deviate from their investment processes. Each manager's funds are regularly checked by other senior managers at Liontrust to ensure they're staying true to their investment processes.
We like that all Liontrust fund managers invest a significant amount of their own money into the funds they run. This helps to align their interests with those of investors.
While Liontrust takes Environmental, Social and Governance (ESG) issues seriously at company-level, this has not yet fed through to all of the company's funds. The Liontrust Special Situations fund, for instance, doesn't formally integrate ESG analysis. The managers are considering whether to bring ESG analysis into their portfolio construction process, but are at an early stage in this work.
The fund has an ongoing charge of 0.89%, which is higher than average for the sector. The HL platform fee of up to 0.45% per year also applies.
The fund has an excellent long-term track record. Over the past 10 years, the fund's turned an investment of £10,000 into £28,931*. The broader UK stock market would've returned £15,374 over the same period, although past performance isn't a guide to the future.
Our analysis suggests returns were boosted by the managers' ability to invest in companies with outstanding prospects, regardless of their size or what sector they're in. Remember the value of your investments will fall as well as rise, so you could get back less than you invest.
The fund's focus on high quality companies means it's tended to lag the broader stock market when it's rising quickly, but hold up better when markets turn negative. That was also the case during the recent stock market turbulence caused by the coronavirus crisis.
The fund significantly outperformed the UK market over the past year, although investors still lost money. The managers' investment process tends to lead them towards sectors like technology and industrials, which were less impacted by the virus, and away from financials and basic materials, which were most impacted.
Top performers included cloud-based communications provider Gamma. The company benefits from a high degree of recurring income and cancellations of existing contracts remained at normal levels. It also continued to expand its services into Europe through acquisitions in Spain and Germany.
|Annual percentage growth|
| Oct 15 -
| Oct 16 -
| Oct 17 -
| Oct 18 -
| Oct 19 -
|Liontrust Special Situations||15.6%||18.8%||4.0%||8.3%||-5.6%|
Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2020
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