Liontrust UK Smaller Companies Fund

The Liontrust UK Smaller Companies Fund returned 4.7%* in March. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 6.8% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 4.3%.

Market gains continued to be driven by the prospect of economic recovery from Covid-19 restrictions. Within the UK market’s solid rise, individual stock movements were heavily influenced by the reporting season for 2020 results.

The Fund’s best performers in March were dominated by those companies providing more evidence of robust trading during the pandemic. Two financial services groups feature prominently in this list: Mortgage Advice Bureau (+22%) and Brooks Macdonald Group (+17%). The former saw healthy growth in its business in 2020 as adviser numbers rose 8% to 1,580 and new mortgage lending market share rose 0.6 percentage points to 6.3%. This year also looks to have started strongly: adviser numbers have risen a further 4% to 1,637 and the company described a “very strong pipeline” of business. It refrained from upgrading 2021 financial guidance, but the results release prompted a positive reaction from investors who pushed shares in the company higher.

Brooks Macdonald reported a 13% increase in assets under management to £15.5bn at 31 December 2020 as good investment performance and the acquisition of Lloyds Banking Group’s Channel Island funds offset net outflows on its existing fund range. Fund flow trends have begun to improve, and the company expects new flows to be “modestly positive” in the second half of the year.

Smart Metering Systems (+19%) is another whose business has proven resilient to Covid-19. It announced a 6% increase in its preferred revenue measure – index-linked annualised recurring revenues – to £77m in 2020. The company commented that despite another national lockdown, the meter installation run rate was about 80% of the Q4 2020 pre-Covid level.

At around 75% of total revenues, Smart Metering Systems’ level of recurring business is sufficient for us to consider it an intangible barrier to competition for the company. Its other core intangible asset as assessed by the Economic Advantage process is its distribution network. Following the recent award of two smart meter installation contracts with unnamed energy suppliers, the company has grown its contracted smart meter pipeline to around 2.5 million meters.

Vehicle telematics supplierQuartix Holdings (+19%) grew its subscription base by 15% to 173,793 units during 2020, resulting in fleet revenue growth of 6% to £22.1m. While Quartix commented that this year’s lockdown has had an adverse impact on customer activity in January and February, it expects new fleet subscriptions to be comparable with last year’s level and much stronger in March.

GlobalData (+17%) recorded flat revenue at £178 after a 7% increase in subscription sales compensated for the decline in revenues at its small events division during the pandemic. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) rose 14% after a 4 percentage point improvement in margin to 32%. The company has a medium-term target to achieve a margin of between 35% and 40% and is also targeting organic revenue growth of at least 10% per annum.

Having in January raised its financial guidance for 2020 in a trading update, shares in Learning Technologies (-8.1%) eased back on the release of full results in March. Since the start of 2020, Learning Technologies has made eight acquisitions using the funding secured in last year’s £80m+ share placing. It commented that trading in 2021 has begun in line with management expectations.

The Fund has initiated a position in Tribal Group. The company is a provider of software and services to the education sector, with customers spanning universities, further education and vocational institutions, schools, government and state bodies, training providers and employers. The fund managers believe Tribal has competitive advantage stemming from its strong intellectual property and global distribution network. Its transition to SaaS should also increase quality of earnings.

During the month, SimplyBiz changed its name to Fintel, a move which reflects its target to become a leader in the provision of financial services sector data and expert intelligence embedded in digital technologies.

Positive contributors included:

Mortgage Advice Bureau (+22%), Smart Metering Systems (+19%), Quartix Holdings (+19%), IG Designs (+19%) and GlobalData (+17%).

Negative contributors included:

Arbuthnot Banking Group (-11%), Learning Technologies Group (-8.1%), Netcall (-6.6%), JTC (-6.4%) and Mattioli Woods (-2.9%).

Discrete years' performance** (%), to previous quarter-end:

*Source: Financial Express, as at 31.03.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

**Source: Financial Express, as at 31.03.21, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Some of the Funds managed by the Economic Advantage team invest primarily in smaller companies and companies traded on the Alternative Investment Market.  These stocks may be less liquid and the price swings greater than those in, for example, larger companies. The performance of the GF UK Growth Fund may differ from the performance of the UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

DISCLAIMER

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.