Liontrust UK Micro Cap Fund

The Liontrust UK Micro Cap Fund returned 2.3%* in May. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 3.2% and -2.2% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 2.3%.

Equity markets continued their upward trajectory, as vaccine optimism offset concerns about rising cases of the Indian variant of coronavirus. In the UK, restrictions eased further and there was evidence that economic recovery was underway with April’s consumer spending rising above pre-pandemic levels for the first time. Higher consumer spending was part of the rationale for the Bank of England raising its 2021 economic growth forecast from 5.0% to 7.25%, which would be the highest rate in more than 70 years.

Among the Fund’s highlights was Augean (+31%), which saw its shares shoot higher as it acknowledged that Morgan Stanley Infrastructure is considering making an approach for the company. Augean added that it had not yet received an offer. The Fund acquired a position in the hazardous waste management company in April on the strength of its distribution network, which revolves around high market shares in its various niches, as well as ownership of the governmental permits and licences required to operate in this heavily regulated space.

Elsewhere, Cerillion (+23%) shares continued their ascent following its April statement in which it said its interim results would exceed management expectations. In May, it published results for the six months to 31 March 2021: new orders rose 148%, revenue rose 26% and adjusted pre-tax profit grew 124%. Results were aided by the company winning some of its biggest ever contracts such as the US$18.4m contract with Telesur in late March.

Eckoh (-15%), which provides secure payments software, said trading for the year to 31 March 2021 was broadly in line with expectations, with operating profit slightly ahead of the previous year’s figure. However, the board indicated that it expects revenue and profit in the current financial year to be only in line with the year just ended, due to the impact of the pandemic on new business activity, delayed incremental recurring revenue and transactional volumes in the UK. In financial year 2023, the company is forecasting material growth in profit and revenue, reflecting more normal conditions.

Science Group (+17%) said it anticipates adjusted operating profit for the first half of 2021 to be around 30% higher than the same period in 2020. This follows a good start to the year in which all three divisions – R&D Consultancy, Regulatory & Compliance and Frontier – have seen strong momentum. Gross cash at 30 April 2021 stood at £29.5m, giving the company a strong platform to pursue growth opportunities.

In May, the managers opened positions in Kitwave Group and Trellus Health. Kitwave is an independent delivered wholesale business specialising in selling impulse products, groceries, frozen and chilled foods to convenience retailers and the foodservice sector. It has a focus on smaller, independent customers who are typically more difficult to service and can promise same or next day delivery from 26 depots across the UK, to their 38,000 customers, offering up to 33,000 different products and with small minimum delivery values. This enables it to capture a market that is not readily available to the large UK delivered wholesalers. The team believes the company possesses a strong physical distribution network, backed up by high levels of repeat business, and the founder and current CEO Paul Young still retains a significant equity stake in the business. The Fund initiated its position at the recent IPO priced at 150p, and the shares have had a solid debut on the market so far.

The Fund received shares in Trellus Health for zero cost, in what was the latest spin-out from its shareholding in EKF Diagnostics – following that of Renalytix in 2018 & Verici DX in 2020 (the former disposed of as it now has a market capitalisation well in excess of the £275m level at which the team look to begin a managed exit). Trellus, like Renalytix & Verici, is applying Artificial Intelligence to large patient data-sets in order to solve critical health problems; Renalytix in the field of kidney disease, Verici in kidney transplants and Trellus in Inflammatory Bowel Disease.

Positive contributors included:

Augean (+31%), Cerillion (+23%), Inspiration Healthcare Group (+21%), Animalcare Group (+17%) and Science Group (+17%).

Negative contributors included:

Crimson Tide (-18%), Eckoh (-15%), Fonix Mobile (-12%), Eagle Eye Solutions Group (-8.5%) and Record (-7.8%).

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

*Source: Financial Express, as at 30.05.21, 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, institutional 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.