Liontrust UK Smaller Companies Fund November 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 -2.8%* in November. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -4.9% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -3.8%.

The FTSE All-Share was trading fairly flat for November and not far from 2020’s highs heading into the last few days of the month, but the identification of the Omicron variant of Covid-19 triggered a sharp drop. Until that point, the market narrative had largely remained centred on the inflationary forces generated by economic recovery from the last two years’ lockdown measures. However, the prospect of a fresh surge in the pandemic sent shares lower, particularly those exposed to any potential public health measures that restrict social contact and travel. Travel & Leisure (-18%) was, unsurprisingly, the weakest sector in the FTSE All-Share Index.

Against this backdrop, it is clear why online holiday retailer On The Beach Group (-32%) suffered such a large share price fall. The company did not issue any significant newsflow in November.

Outside of On the Beach, the Fund has relatively low exposure to the businesses that are most affected by such restrictions. The portfolio’s other heaviest fallers were reacting to stock-specific developments. For example, recent addition Frontier Developments (-27%) dropped on a disappointing trading update. The position was added during November, supplementing the existing stable of video gaming developers and support services providers held across the Economic Advantage range (Team17, Keywords Studios and Sumo Group – the latter currently in the process of being acquired by Tencent). But the timing of the investment proved unfortunate with the company subsequently notifying the market of weak sales of one of its games. PC sales for its Jurassic World Evolution 2 game have disappointed, leading it to revise its revenue guidance for this financial year to £100m - £130m, down from £130 - £150m. Frontier Developments attributes this to a more crowded release window than expected, and forecasts significant sales improvement around Christmas. Although the short-term sales miss is a disappointment, we were aware of the potential for the company’s earnings to prove volatile around the new game release cycle. We retain our long-term conviction in the increasing strength and diversity of intellectual property within Frontier’s gaming content, as well as the company’s proprietary Cobra games engine, which we believe is critical for the repeatability of development of its complex and expansive games

Among better newsflow, advanced paper products company James Cropper (+27%) rose after the group announced that it had seen a 47% increase in revenues to £49.8m in the six months to 25 September, compared to £34m in the previous year, with growth coming from all divisions. Paper sales are forecast to exceed pre-pandemic levels by the start of 2022, following strong demand for recycled fibre content and responsible sourcing.

Eckoh (+17%), the provider of secure payment products and customer contact solutions, was another of the best performing holdings in November after announcing it had won a contract with a leading global food and drink company – its largest ever global Secure Payments Cloud contract win. Eckoh’s software allows companies to manage customer engagement via multiple communication channels, and it has also developed a patented payment solution which enables customer payment information to be received in a secure way. Earlier in the month, Eckoh announced in an interim trading update that it had seen modest growth in underlying revenues as activity levels have recovered from the pandemic; its full-year guidance is unchanged.

Focusrite (+17%) develops hardware and software for the high-quality production of recorded and live sound. Over the year to 31 August, it generated 28% organic revenue growth as demand for studio and home recording equipment more than compensated for a drop-off in sales to live sound events. The company commented that demand for the vast majority of its products has remained strong at the start of the new financial year, with Covid-19 affected segments also showing signs of recovery.

Although FW Thorpe’s (+13%) AGM statement showed that supply chain problems are hampering sales, investors seemed happy to focus on positive indications of underlying demand. The manufacturer of professional lighting equipment said that, since the end of June, its revenues are marginally up year-on-year but higher growth has been prevented by LED and electronic component shortages.

While Dotdigital (-19%) full-year results delivered on the 23% revenue growth indicated in a July trading update, shares in the company de-rated as investors took stock following some very strong share price gains in the prior year.

Positive contributors included:

James Cropper (+27%), Impax Asset Management (+21%), Focusrite (+17%), Eckoh (+17%) and FW Thorpe (+13%).

Negative contributors included:

OnTheBeach (-32%), Frontier Developments (-27%), Quixant (-21%), Dotdigital (-19%) and Learning Technologies Group (-14%).

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 30.11.21, 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.