Liontrust UK Smaller Companies Fund

The Liontrust UK Smaller Companies Fund returned -3.0%* in August. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -4.0% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -4.7%.

A further surge saw European gas prices breach the €250/MWh level intra-month, taking them to around ten times their normal levels prior to the spikes seen over the last year.

The Bank of England cited Russia’s restriction of gas supplies as the major factor in an escalation in inflationary pressures over the summer months. While its decision to raise rates by 50 basis points to 1.75% was expected, the tone of its accompanying comments was even more downbeat than most had expected. It noted that the UK is projected to enter recession in the fourth quarter, with real household income expected to fall sharply in 2022 and 2023.

Consumer confidence data from GfK confirmed a gloomy macroeconomic backdrop, with the August index score hitting its lowest level (-44) since the dataset began in 1974. Investors’ assessment of the UK’s economic prospects was reflected in a 3% fall in the trade-weighted value of sterling, taking its year-to-date deprecation to 5.7%.

The deterioration in economic outlook prompted another bout of risk-off investor behaviour, resulting in a -1.7% FTSE All-Share Index return. The weakness was most acute among the mid-cap FTSE 250 index, which returned -5.2% for the month.

Following the July 2021 acquisition of Sentry, Craneware’s (-16%) revenues jumped by 119% to $165m in the year to 30 June 2022, with adjusted EBITDA rising 85% to more than $50m. The provider of IT solutions to US healthcare providers has now fully completed the integration of Sentry, with the combined EBITDA margin target of 30% being hit ahead of schedule. It also commented that synergies from the deal have largely mitigated the wage inflation seen in the industry this year. However, many of the hospitals it serves have yet to fully recover activity levels to pre-pandemic levels. While this has restricted growth to some extent in the last year, Craneware expects activity to normalise soon.

Globaldata’s (+21%) 10% underlying revenue in the six months to 2022 rises to 23% overall growth with the inclusion of last year’s acquisitions. Encouragingly, it also disclosed that subscription revenues had risen 21% to represent 83% of the total. Repeat business is one of the three core intangible assets which we think often create barriers to competition. The consultancy and data analytics group restated its intention to seek out further complementary businesses, with an upcoming refinancing of bank facilities set to release £180m in capital for acquisitions.

In other portfolio news, Next Fifteen Communications’ (-16%) pursuit of M&C Saatchi rumbles on, with the approach classed as hostile since the June removal of M&C Saatchi’s board approval. It faces competition in the form of another hostile offer from AdvancedAdvT Limited, an acquisition vehicle chaired by Vin Murria, also a director of M&C Saatchi.

Elsewhere, portfolio newsflow once again seemed to take a back seat to other factors in driving individual share price moves. The fund’s other largest positive and negative contributors did not issue material updates in August, although investors in Microlise (+24%) may still have been digesting an upbeat late-July trading update. The provider of transport management software to fleet operators announced 11% year-on-year growth in annual recurring revenues in the six months to 30 June, 60 new customers and a very low customer churn rate of 0.1%, while also reaffirming 2022 revenue and profit guidance.

Positive contributors included:

Microlise (+24%), Globaldata (+21%), Keystone Law Group (+17%), On The Beach (+15%) and FRP Advisory (+13%).

Negative contributors included:

Focusrite (-25%), Next Fifteen Communications (-16%), Craneware (-16%), Learning Technologies Group (-14%) and Impax Asset Management (-13%).

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

Past performance does not predict future returns

*Source: Financial Express, as at 31.08.22, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.06.22, total return (net of fees and income reinvested), bid-to-bid, primary class.

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.

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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.