Robust growth from Liontrust

Its underlying companies should in theory be robust performers in a low-growth environment, with strong barriers to competition, sturdy pricing power and a focus on faster-growing emerging markets. But will they prosper in the final months of 2012 and beyond? The fund's track record suggests so.

It earned a place in our list of Top 100 Funds earlier this year for its sterling performance and, since then, managers Anthony Cross and Julian Fosh have made no changes to their clear and strong investment strategy. They have no plans to do so anytime soon, either. Mr Cross is confident his attitude is: "Why fix something when it's not broken?" They look for three key qualities in the companies they buy. The first is intellectual property in the form of patents, branding and copyrights, all of which enhance pricing power beyond other companies, they argue. The second is a strong distribution network - as these are valuable and difficult to replicate. Rightmove and Diageo are two companies they say does this well. And the third is high contracted recurring revenue - they want 70 per cent of income to come from regular contracts. They won't consider a stock unless they have at least one of these qualities - and their best stocks possess all three.

Its worth noting construction, building, mining and retail banking are absolute no-no's for Messrs Cross and Fosh. This is because they aren't in control of their pricing power. Instead, they are at the mercy of market prices and supply and demand.

Both managers have seasoned backgrounds in equities - especially small caps - which will reassure investors they are in safe hands. But they don't always get it right.

They recently sold stockbroker Panmure Gordon as its distribution network wasn't as successful as they'd anticipated. They replaced it with data centre Iomart - which they say possesses several of the qualities they look for and has excellent potential.

The fund's 1.92 per cent total expense ratio (TER) looks quite expensive compared with its peers, but taking into account its stunning performance record, the charges start to look reasonable - it is the top performer in its Morningstar category over both three and five years. Judging it on its one-year performance it is slightly more disappointing, falling just outside the top 10, but is still very impressive.

Of course, high returns never come without risk - and this fund does have between 20-30 per cent in smaller companies, giving a higher level of risk than some other funds in its sector. But Mr Cross told Investors Chronicle: "We believe the individual characteristics and balance sheet strengths of our smaller companies helps mitigate the risks normally associated with small caps". What's more, both managers have their pensions invested in the fund, giving you one less reason to worry.

This is a core fund that will give you exposure to an impressive array of long-term growth companies. Buy.

Performance of Liontrust Special Situations Fund (as at 16 November 2012)