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The Lion’s share

Liontrust can stake a strong claim to be the father of boutique houses in the UK, starting life in 1995.

Several of the group’s founders, including CEO Nigel Legge and key managers Jeremy Lang and William Pattisson, came over from James Capel. The firm broke even in its 20th trading month and listed on its fourth anniversary in 1999.

Liontrust boasts a wide array of key boutique features, with Legge stressing its specialisation and culture of freeing up managers to run money.

He also highlights transparency of corporate reporting and the company’s lack of debt, which sets it above many competitors in current conditions.

Perhaps most important is depth of investment approach, with a clearly defined and densely researched process in place for each fund.

The group is considering the next stage in its development, confirming a takeover bid for the company earlier this year.

Like most other fund managers, Liontrust has suffered in turbulent conditions and its share price has more than halved since May, from 321p to 113p.

Despite this, the group was able to announce strong six-month results in November.

It revealed a 10 per cent rise in profit before tax, although assets under management have declined by £2bn over the last 12 months.

Unlike many competitors, it has avoided massive headcount expansion, so is not forced to cut back against the current background.

Almost unique in the investment world, the group has never had to deal with an enforced manager change on a portfolio in its 14-year history.

Legge attributes this to fair remuneration, a culture of little micromanagement and everyone having accountability for performanceThere are four basic UK equity approaches in place, all focusing on slightly different elements of behavioural finance and how it affects stockmarkets. These include the Lang approach and value dynamic, used on Lang’s first growth and first income funds respectively.

Meanwhile, the large-cap strategy governs Pattisson’s blue-chip portfolios and the Cross report is used on the smaller-cap funds under Anthony Cross.

Liontrust made its first move outside UK equities in 2006, bringing in Gary West and James Inglis-Jones to head European products. Like the rest of the firm’s managers, the pair spent several months refining and documenting their cashflow solution process.

A global product is likely to be the next venture but Legge said a key benefit of boutique status has been lack of pressure to launch fad products.

All the Liontrust managers are confident enough to stick to their processes as they have backtested them through various market conditions.

With Lang, for example, his Lang approach used on the first growth fund focuses on companies with underappreciated potential to surprise the market. He backtested this process, going back to 1971 in the US and 1987 in the UK.

Meanwhile, he runs first income according to the value dynamic, which tends to buy stocks suffering from market over-reactions. Lang said such companies typically have high yields and these so-called losers have a strong tendency to bounce back.

Looking at performance across the Liontrust range, first growth, first large cap and first opportunities are all top quartile in the UK all companies sector over three years to November 24.

As first glance, first income’s performance looks disappointing, sitting at the bottom of the UK equity income group over most timeframes. But Lang has fallen foul of sector problems, with many outperforming managers failing to hit the 110 per cent of the FTSE All-Share yield target.

The Investment Management Association has now confirmed that funds not achieving this level will be removed from the peer group with effect from January.

Lang is also one of just a handful of managers who has grown his dividend income for each of the last 10 years.

Liontrust has always had strong distribution through discretionary and fee-based adviser channels but has been hit and miss in the wider IFA sector. To address this, Rob Page has joined as marketing director and Tim Gordon is set to take the head of third-party sales role from January, both moving from New Star. At the core, a boutique’s cultural niceties are about generating better performance and Legge believes more sophisticated investors will increasingly turn to smaller firms.

He says many of the bigger companies launched in the 1980s have structures and cultures suitable for then and risk being left behind as the industry moves on.


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