Liontrust has suffered £1.6bn of outflows over the last three months to the end of September 2023, according to its quarterly results published today (18 October), contributing towards a 6.3% fall in assets under management and advice since the start of July.
The firm’s UK retail funds and model portfolio service suffered investor outflows of £968m, with market and fund performance wiping out £362m of AUMA. According to the results, 12 out of 38 (31.6%) of Liontrust’s UK retail funds found themselves in the fourth quartile over the last year. Overall, retail fund and MPS assets fell from £24.7bn to £23.4bn over the three months – a 5.4% reduction.
Institutional funds suffered net outflows of £346m, with market performance contributing to a £38m fall. This meant that overall, institutional assets fell by 13.8% from £2.2bn to £1.9bn. Assets held in alternative and international funds shrunk by 43.6% and 1.8% respectively, to £292m and £911m.
On the investment trust side, assets under management ticked up by 2.2% to £1.1bn, despite investor outflows of £24m. Positive investment performance contributed £48m to AUMA. Earlier this month, it was announced that James de Uphaugh, who manages the £1bn Edinburgh Investment Trust (EDIN), will retire in February 2024.
Over six months to the end of September, outflows across all assets fell by £3.2bn, from £31.4bn to £27.7bn. This marks a 12% fall. Over the same time period last year, assets shrunk by £2.2bn.
Liontrust’s CEO John Ions said the past year has been “challenging”, with the firm continuing to “face the headwind of current investor sentiment”.
“Liontrust has been impacted by our bias towards equities, the quality growth style, mid and small caps and the broad negative sentiment towards the UK,” he explained. “The UK All Companies sector has been the worst net selling retail sector in the UK for six of the past seven quarters, according to the Investment Association (IA).
“Investor sentiment continues to be negatively affected by rising interest rates and the increased yield available on cash. But holding cash over the long term is not a strategy for delivering real growth for savers.
“In time, cash will leave savings accounts and money market funds to return to investment markets. We are striving for Liontrust to be in the best position possible to attract investors’ savings and to benefit when sentiment changes.”
The company has also spent several months embroiled in a controversial takeover bid for Swiss asset management firm GAM. The deal ultimately failed due to GAM shareholder opposition, with only 34% of GAM shares tendered into the offer by the final deadline, when a minimum 66% was required.
The failed deal incurred an £11m one-off charge for Liontrust, although the firm is currently demanding that GAM repays an £8.9m loan it made to them, including interest.
Ions said the acquisition “would have accelerated [Liontrust’s] strategic objectives” and that the firm’s belief in the company “has only strengthened”.
“The knowledge and insight gained through the GAM process is also helping us shape our future operating model for the long-term growth of the Liontrust business,” he continued. “This will lead to restructuring and efficiencies in some areas of the business. Our flexible remuneration model for fund managers and other staff remains unchanged in light of the headwinds we are facing; in particular, the revenue share model for fund managers ensures they are fully aligned with the business and investors.”
However, Ions said outflows from the firm’s UK retail funds has emphasised the importance of Liontrust “broadening the fund range by asset classes and investment styles and expanding geographical distribution to enable us to perform through the cycles of demand”, with the CEO citing the likes of South America as an enticing market.
“Successful asset management companies are built on the quality of their people,” he added. “I am proud to be chief executive of Liontrust with our excellent investment teams and talent across the group, who will see the business through tougher times like now and drive it forward over the long term.”
Peel Hunt doubles down on ‘buy’ rating
Despite Liontrust’s large net outflows, and the fact its shares are trading towards the bottom of its peer group average, Peel Hunt has reiterated its ‘buy’ rating for shareholders.
“Difficult market conditions have been broad-based, though exacerbated in the case of Liontrust due to its reliance on UK retail clients. Just under £1bn of the total £1.6bn net outflows in the quarter are attributed to its UK retail client group,” it said. “As a result, Liontrust’s AUM performance compares relatively unfavourably to its asset management peer group for the three months to September.
“With this said, Liontrust is not a ‘stand out’, with Ashmore and Premier Miton in particular posting a comparable 7.5% and 6.3% drop in AUM through the same three-month period, respectively.”
Peel Hunt pointed out that the firm’s shares have tumbled by 77% from highs reached two years ago, and are down by 52% year to date. Shares are currently trading on a calendar year-end price-to-earnings ratio of 7x and are yielding 12%.
“The business is clearly facing cyclical pressures, but in our view, the current valuation does not reflect the strength of the core franchise and we believe there is re-rating potential when flows stabilise.
“We reiterate our ‘buy’ rating.”