Liontrust UK Smaller Companies Fund October 2021 review | Insights

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 -2.2%* in October. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -1.2% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -1.9%.

Supply chain bottlenecks and inflationary pressures remained on the agenda through the month but equity markets drifted higher as investors wait to see what action central bankers might take. The MSCI World Index of developed markets notched up a 3.9% gain, while the FTSE All-Share rose 1.8% - a gain led by the 2.2% rise in the FTSE100.

Unfortunately, the portfolio’s largest absolute share price move in October was a negative one, as Iomart (-32%) fell heavily. The company has been slow to adapt to the changing market environment in which it operates – notably the dramatic shift from private to public cloud, which was accelerated by the Covid crisis. It issued a profit warning in April and another in October, noting that customer churn remains higher than usual and revenues from hardware reselling and one-off consultancy have dropped. We actively continue to assess Iomart’s business prospects within the context of this shift.

On The Beach Group (-22%) was also a large detractor as it declined to issue any financial guidance for next year due to the short-term uncertainty in the travel industry as a result of the pandemic. In October, the company issued a trading update for the twelve months to 30 September 2021. Due to the UK government’s decision to classify most holiday destinations as ‘amber’ in May, On The Beach didn’t start selling holidays again until the start of September. While activity remains below pre-pandemic levels, the company has seen enough evidence to believe that there is pent-up demand heading into its new financial year.

In better news, strength in Q3 trading led recruiter Robert Walters (+16%) to comment that it now expects 2021 profits to be “comfortably” ahead of the level predicted within interim results. Group net fee income rose 32% year-on-year in Q3, with Asia Pacific the strongest area – up 54% despite many of its markets being under some form of significant lockdown. The region has grown to now account for 48% of group fee income.

Mortgage Advice Bureau (+18%) recovered strongly from a late-September dip in its share price which accompanied the release of interim results. Last month’s profit-taking looked to have been driven by comments that activity had softened recently as the impact of the stamp duty holiday phases out. However, the company stated that this trend was expected and that its full-year financial guidance is unchanged.

A couple of the Fund’s financial services holdings moved higher on solid quarterly updates on assets under management. Integrafin Holdings (+10%) announced that funds under direction at its Transact platform had risen 3.6% to over £52bn. With the FTSE All-Share only rising 1.1% over the quarter, the majority of the increase was driven by positive net flows. Tatton Asset Management (+9.3%) also notched up a healthy increase in assets under management, which rose by 20% to £10.8bn in the six months to 30 September. This follows £650m net inflows, a market movement effect of £495m, and another £650m brought onboard through the recent Verbatim acquisition. The company commented that it is trading in line with full-year expectations.

Tristel (-19%) has previously commented on the scale of the Covid-19 headwind to its sales growth and this was apparent in its results for the year to 30 June 2021. Turnover fell 2% to £31m and adjusted pre-tax profit dropped by almost a quarter to £5.4m. However, Tristel believes sales of its medical device disinfectants should now pick up again as patient examinations return to more normal levels. In the first quarter of its new financial year, Tristel has observed increasing patient examinations in most of its markets. The company also commented that its normal pattern of business seems to have resumed for the first time in 18 months.

Curtis Banks Group was sold from the Fund as, despite recent improvements in the quality of earnings and strategic direction of the company, the fund managers had concerns around the deteriorating quality of the lending book (from which the business earns the majority of profits) and the founding management team’s decision to take a step back from day-to-day involvement.

Positive contributors included:

Mortgage Advice Bureau (+18%), Robert Walters (+16%), Integrafin (+10%), Next Fifteen Communications (+9.6%) and Tatton Asset Management (+9.3%).

Negative contributors included:

Iomart Group (-32%), On The Beach Group (-22%), Tristel (-19%), James Cropper (-19%) and Focusrite (-18%).

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

	Sep-21	Sep-20	Sep-19	Sep-18	Sep-17
Liontrust UK Smaller Companies I Inc	46.9%	12.8%	-5.0%	19.7%	23.8%
FTSE Small Cap ex ITs	72.4%	-12.7%	-7.8%	0.6%	17.8%
IA UK Smaller Companies	51.1%	-0.4%	-7.1%	10.8%	25.0%
Quartile	3	1	2	1	3

*Source: Financial Express, as at 31.10.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.09.21, total return (net of fees and income reinvested), bid-to-bid, primary class.

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Key Risks

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

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.

Disclaimer

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.