Liontrust UK Smaller Companies Fund

• UK equity markets initially plunged following sweeping US tariffs dubbed "Liberation Day," but rebounded as investor sentiment improved after a softening in the US stance.
• Lower market capitalisation indices outperformed their larger peers.
• This revival in investor sentiment helped lift holdings such as Tristel, DotDigital, Brickability, and Kitwave.

The Liontrust UK Smaller Companies Fund returned 2.0%* in April. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark, and the average fund in the IA UK Smaller Companies sector, also a comparator benchmark, returned 1.9%%

UK equity markets endured a sharp sell-off after sweeping tariffs announced by US President Donald Trump – dubbed "Liberation Day" – sent shockwaves through global markets. However, sentiment improved later in the month following a shift in the US administration's approach, including a 90-day delay on tariffs for non-retaliatory countries and the removal of duties on a range of electronic goods. This softening in tone provided reassurance to investors and supported a partial recovery in stock prices.

It was reassuring to see a broadening out of market performance beyond large caps as lower market capitalisation indices outperformed their larger peers during the market rebound, demonstrating stronger recovery momentum and capturing greater upside as market sentiment improved. The mid-cap FTSE 250 rose 2.7%, while the FTSE Small Cap ex Investment Companies Index gained 1.9%. In contrast, the more globally exposed large-cap FTSE 100 fell by 0.7%. This divergence – largely a reflection of risk aversion driven by macroeconomic uncertainty – continues to present an opportunity to invest in small caps at valuations near historic lows.

Fund performance was helped by some strong share price recoveries during the month, particularly from the market lows near the start of the period.  It was pleasing to see a degree of momentum return to many of the portfolio’s holdings and in fact since the market lows of 10^th April, over 75% of the portfolio’s holdings delivered positive total returns and over a third delivered double digit returns for the remainder of the month.

The largest contributors to Fund performance was data analytics and consultancy firm GlobalData (+20%), one of the Fund’s largest positions. Its share price rose sharply on the last day of the month after it confirmed it had received “preliminary, conditional” takeover approaches from two separate private equity investors. One proposal comes from funds managed by ICG Europe Fund, while the other is from KKR. Notwithstanding how we might feel about another of our high-quality holdings being taken over, which at this point is moot given that no firm takeover bid has been announced and no price level has been discussed, the news – and subsequent strong share price bounce, which only brought the stock back to levels at which it was trading in March – helps to support our firm belief that the Fund’s companies’ strong fundamentals will be rewarded eventually, in one way or another. Other notable contributors to performance included On the Beach (+19%), Dotdigital (+21%) and Cohort (+15%), all in the absence of news flow.

The one notable disappointment came from RWS Holdings (-44%), which released a deeply frustrating trading update in which it alerted the market that despite returning to organic growth, mix issues and pricing pressure were impacting margin, resulting in a ~30% downgrade to consensus earnings. Its new CEO did however purchase a significant amount of stock following the warning. Notwithstanding that signal, the fund managers are conducting further research and analysis in light of the unexpected deterioration in trading and have reduced risk in the position in the meantime.

We believe several factors are aligning to create a more supportive environment for UK equities, particularly quality growth names in the small and mid-cap space. US President Donald Trump’s recent actions have triggered a reassessment of the relative appeal of US versus international markets, including the UK, while also raising the likelihood of faster interest rate cuts, which would benefit the asset class.

There is also growing momentum around potential government policy support. We’ve engaged extensively with both government and regulators on issues including AIM, pension reform, and the regulatory burden on listed companies, and have been encouraged by their willingness to strengthen the UK’s capital markets.

This combination of improving relative asset allocation dynamics and potential policy action underpins our increasing confidence that capital will begin to flow back into the market.

Positive contributors included:

GlobalData (+20%), On the Beach (+19%), DotDigital (+21%), Cohort (+15%) and Kitwave (+20%)

Negative contributors included:

RWS Holdings (-43%), Judges Scientific (-24%), Impax Asset Management (-15%), JTC (-8.3%) and Focusrite (-16%)

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

*Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.03.25, total return (net of fees and income reinvested), bid-to-bid, primary class.

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

The Funds managed by the Economic Advantage team:

• May invest in smaller companies and may invest a small proportion (less than 10%) in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, a fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause a fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
• May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
• May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
• Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.

The risks detailed above are reflective of the full range of Funds managed by the Economic Advantage team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

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.

DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It 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.

This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. 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.