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Liontrust UK Smaller Companies Fund

May 2021 review
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust UK Smaller Companies Fund returned 1.4%* in May. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned 3.2% and 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.


On the corporate front, there were a number of updates from the Fund’s financials holdings. Impax Asset Management (+11%) had a stellar interim period with assets under management doubling year-on-year to £30bn at the end of March 2021, which fed through to strong increases in revenue and profit. The sustainable asset manager continued to benefit from the ongoing popularity of ESG investment strategies. Its thematic Environmental Markets equity strategies were a particular highlight and were responsible for 65% of inflows. The company doubled its interim dividend on the back of this strong performance.


Charles Stanley’s (+14%) performance was more muted, but nonetheless resilient during a turbulent year. In the 12 months to end-March 2021, revenue edged slightly lower and average funds under management was £23.2bn compared to £24.2bn in 2020. There were signs of progress: the company’s Financial Planning division achieved record revenue of £10m, while revenue margins for the entire group improved to 74 basis points from 72bps. Management was positive in its outlook, saying market momentum has been strong which it expects to benefit the company’s wealth management services.


Wealth manager Mattioli Woods’ (-7.3%) share price fell after the company raised £110m in a discounted placing to help fund its acquisitions of private equity investor Maven Capital Partners and financial planning business Ludlow Wealth Management. The purchase of Maven Capital is for a consideration of up to £100m and would complement the group’s existing investment proposition. Ludlow is expected to add scale to Mattioli’s operations in the North West of England and would be acquired for a total consideration of £43.5m. 


Arbuthnot Banking Group (-9.5%) shares fell despite commenting on an upbeat start to the year. The company said new loans rose 57% year-on-year during the first four months of 2021, while consumer deposits increased 24%. Clients acquisitions in its Banking unit were the highest since 2017 with growth in both private and commercial banking businesses.


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.


The Fund recently initiated a position in Churchill China. It is a supplier of ultra-durable ceramic tableware to the hospitality industry. The company, which remains 30% owned by its founding family, enjoys an IP advantage in the deep know-how within its manufacturing processes, which gives it both product quality and cost leadership advantages. It is also owned on the strength of its distribution network, with a high market share in the UK (25%), and a broad network of domestic and international distribution partners built up over many years. While it does not have ‘true’ contracted recurring income, the business does also benefit from a very high proportion of ‘replacement’ sales (70-80% of turnover), making its revenue more repeatable and reliable.


Keystone Law is a “platform law firm”, using an innovative structure in which it provides central infrastructure services (such as IT, compliance, finance and marketing) to its contracted base of self-employed lawyers. Its Economic Advantage lies in the strength in distribution, as the largest established ‘network’ law firm in the UK. The stock is already held in the UK Micro Cap Fund and was promoted up the chain having reached £200m market cap and proven the business model over the last several years. The Fund was able to take an initial position after the CEO James Knight sold down a portion of his holding, though he still remains the largest shareholder with almost 30% of the equity.


Kitwave Group was another addition. It 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.


Positive contributors included:

dotdigital Group (+18%), Animalcare Group (+17%), Charles Stanley Group (+14%), Clipper Logistics (+11%) and Impax Asset Management (+11%).


Negative contributors included:

Craneware (-15%), Eckoh (-15%), Team17 Group (-13%), Arbuthnot Banking Group (-9.5%) and Mattioli Woods (-7.3%).

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







Liontrust UK Smaller Companies I Inc






FTSE Small Cap ex ITs






IA UK Smaller Companies













*Source: Financial Express, as at 31.05.21, 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, primary class.

Understand common financial words and terms See our glossary

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.


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.

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