Liontrust UK Smaller Companies

The Liontrust UK Smaller Companies Fund returned 6.9%* in April. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 6.1% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 6.9%.

Ongoing positive sentiment towards the vaccine effort and related economic recovery supported more broad-based market gains in April. The FTSE 100 large-cap index returned 4.1%, the FTSE 250 mid-caps gained 4.9% and the FTSE Small Cap Index registered a 5.3% return.

Signs of increasing economic confidence were apparent in macro releases such as March UK retail sales. This showed a 5.4% increase on February, ahead of the 1.5% consensus forecast, and 7.2% above March 2020’s level. Across the market, a range of companies also pointed to improving demand from end markets.

Within the Fund, stocks that benefitted from improving sentiment towards the UK economy included Arbuthnot Banking Group (+39%), a domestically focused banking and financial services group. During April, Arbuthnot engaged in some reshuffling of its asset portfolio. It completed the acquisition of commercial vehicle finance specialist Asset Alliance for around £10m and sold shares in Secure Trust Bank worth almost £12m. Despite the positive move, the shares still remain at a discount to levels seen prior to the Covid-19 crisis taking hold.

Next Fifteen Communications (+29%) slipped to a pre-tax loss in the year to 31 January 2021 due mainly to over £36m in one-off costs related to acquisitions during the year. Adjusting for these, operating profit rose 21% to £50m following revenue growth of 7% to £267m. The shares were given impetus by an upbeat outlook section commenting that trading in the new year has been ahead of management’s expectations.

Sustainable investment specialist Impax Asset Management (+29%) reported further strong growth in assets under management, up 19% to £30bn in the three months to 31 March 2021. The majority of the increase – £4bn – resulted from strong net flows, with positive market movements also contributing £813m.

One of the portfolio’s weaker trading updates came from cloud computing company Iomart Group (-12%). It warned that results for the year to 31 March 2021 would be at the lower end of expectation after the UK’s third lockdown hampered the recovery in activity it had previously seen. The impact was primarily felt through a drop in non-recurring hardware reselling as customers delayed investment decisions.

Having staged a strong rally to reclaim and exceed their pre-Covid level, shares in Attraqt Group (-9.8%) also gave back some ground after a trading update described in-line trading for the quarter to 31 March 2021. The ecommerce online search specialist is benefitting from a structural shift by retailers to focus on their online offerings in response to the pandemic.

A small drop in Tribal Group’s (-3.8%) share price belies a relatively upbeat AGM statement that described trading as remaining buoyant and in line with its expectations. Tribal Group was added to the portfolio last month; it 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.

During April, it bolstered its ambitions to provide a comprehensive software-as-a-service offering to the education sector through the acquisition of Semestry for up to £6m. Semestry is a specialist in cloud-based scheduling and timetabling software.

The Fund participated in the initial public offering of shares in MusicMagpie, a “re-commerce” specialist in the areas of consumer technology, books and disc media. Founded by CEO Steve Oliver and business partner Walter Gleeson in 2007, MusicMagpie buys pre-owned items from consumers, refurbishing where necessary, before selling on to other consumers. The company has good intellectual property, a strong distribution network and a well-known brand.

Positive contributors included:

Arbuthnot Banking Group (+39%), Craneware (+30%), Impax Asset Management (+29%), Next Fifteen Communications (+29%) and Alpha FX (+26%).

Negative contributors included:

Iomart (-12%), Attraqt Group (-9.8%), Quartix Holdings (-9.7%), Ideagen (-8.9%) and Judges Scientific (-8.9%).

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

*Source: Financial Express, as at 30.04.21, 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.