Liontrust UK Micro Cap Fund February 2022 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 Micro Cap Fund returned -5.7%* in February. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned -3.9% and -4.9% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -5.8%.

Developments in Ukraine ensured that top-down considerations were once again the largest factor in driving stockmarket returns, as investors’ focus shifted from macroeconomic to geopolitical analysis.

From the perspective of the Economic Advantage Funds, this meant a continuation of some of the headwinds from last month. ‘Value’ continued to outperform and ‘quality’ to underperform, though to a lesser degree than in January, while larger companies outperformed smaller ones, perhaps reflecting a degree of risk-aversion returning to markets in the light of the geopolitical situation

Some of the largest portfolio detractors were again driven by investor sentiment rather than company newsflow. Of the portfolio’s five largest detractors, only Virgin Wines UK (-30%) issued an update to investors during February. Its shares fell heavily due to the cautious tone of a trading update. Total sales of £41m in the six months to 31 December 2021 are in line with the prior year comparable and up 55% on two years ago. However, the company commented that customer acquisition has slowed following a reduced response from paper-based activity and lower activity from individual partner offers. It also commented that inflationary cost pressures remain a headwind. As a result, it now expects profits for the year to June 2022 to be slightly below market consensus.

By contrast, Inspiration Healthcare (+9.3%) said it expects to exceed analyst forecasts with results for the year to 31 January 2022 despite cost pressures and supply chain issues. Revenues rose by 11% to around £41m while adjusted EBITDA is expected to be at least £6.2m, also 11% higher than last year.

Kitwave Group (+10%) was another positive contributor. The logistics business has many customers in the hospitality and leisure sectors, so has felt the impact of public health restrictions during the pandemic. But a results announcement in February – covering the year to 31 October 2021 – came in ahead of expectations. The company also stated that the first few months of the new financial year have started positively, with trading on course to return to pre-pandemic levels.

The prospect of an era of higher defence spending has pushed shares in related stocks and sectors higher. The Fund owns shares in Cohort Group (+20%), the parent company for six defence and security technology businesses.

Shares in Cake Box Holdings (-37%) continued to fall at the market further digested last month’s news regarding accounting discrepancies.

Positive contributors included:

Cohort (+20%), Microlise Group (+19%), Kitwave Group (+10%), Inspiration Healthcare (+9.3%) and Churchill China (+5.0%).

Negative contributors included:

Cake Box Holdings (-37%), Virgin Wines UK (-30%), Gear4Music (-26%), Bigblu Broadband (-18%) and Quixant (-18%).

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

Past performance does not predict future returns

	Dec-21	Dec-20	Dec-19	Dec-18	Dec-17
Liontrust UK Micro Cap I Acc	33.6%	12.1%	29.1%	3.0%	22.1%
FTSE Small Cap ex ITs	31.3%	1.7%	17.7%	-13.8%	15.6%
IA UK Smaller Companies	22.9%	6.5%	25.3%	-11.7%	27.2%
Quartile	1	1	2	1	4

*Source: Financial Express, as at 28.02.22, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.12.21, total return (net of fees and income reinvested), bid-to-bid, institutional 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.