Liontrust Global Smaller Companies Fund

The Liontrust Global Smaller Companies Fund returned 4.5% in Q2, compared with the 5.8% return of the MSCI ACWI Small Cap Index and an average return of 5.6% in the IA Global sector, its comparator benchmarks.

Global markets started the quarter with significant volatility in April as US tariff announcements led to heightened uncertainty and a sharp fall in risk appetite. Despite still high levels of uncertainty following a 90-day ‘pause’ ahead of any further broad tariff actions, trade negotiations throughout the remainder of the quarter led to a broad rally in equities, led by US and European stocks. The announcement of a large US tax cut and spending bill led to an increase in US long bond yields as markets worry about America’s ability to service its debts in the long term. Higher long end rates and continued elevated political uncertainty continues to weigh on both consumer and corporate spending plans. 

In Europe, the environment is relatively more stable, with falling inflation, positive fiscal impulse (particularly in its largest economy Germany), and continued central bank rate cutting. In Japan, inflation remains elevated and institutions stepped away from long term bond auctions, leading to a sharp increase in the 30-year yield. Oil prices have fallen since the first quarter, as the global industrial demand outlook has been weakened by trade uncertainty. The dollar has fallen 10% this year, as investors question the affordability of a greater debt load in the US and whether the ‘US exceptionalism’ trend is coming to an end.

In the Fund, our collection of high-quality companies, led by aligned management teams (who own significant portions of their own stock), with strong profitability and pricing power, carry on regardless. The slight underperformance versus the index in Q2 was not driven by any particular sector skew, but rather by stock idiosyncrasies and style (value has outperformed quality and growth in recent months given higher bond yields).

Top contributors:

• Andlauer Helathcare Group (+37% total return in sterling terms) – Operates the largest supply chain logistics network in Canada for the life sciences and healthcare sectors. It was the subject of a takeover bid from US logistics company UPS; the shares have rallied close to the price offered.

• Gaming Realms (+38%) – A company with unique IP, that continues to deliver strong revenue growth, profit expansion and successful new product development in the burgeoning US gambling market. Shares have been strong since the impressive results in March.

• Donnelley Financial Solutions (+33%) – Has recovered strongly from lows earlier in the year, as it reported a strong set of quarterly results on both revenue and profitability, and management continue to buy back shares aggressively (have already bought back c.5% of the share count in 2025). We believe the shift to higher quality earnings through software will deliver strong long-term shareholder returns, despite short-term volatility.

Largest detractors:

• Aris Water Solutions (-30%) – Delivered strong operating results in the quarter but forward-looking guidance was conservative, given a lower oil price reduces drilling activity and return on investment on new well construction in the Permian. The company has a network of approximately 790 miles of pipeline for water services to companies in Texas, enabling oil companies to save costs compared to trucking options for water handling and recycling. We like Aris’ entrenched water distribution network, contracted revenues, and low incremental capex needs hereon that lead to the potential for considerable operating leverage as it grows with their clients. 

• Sysmex Corporation (-14%) – Reported solid results and we remain excited about the medium-term outlook for its new flagship haematology machine which improves reagent throughput and lab productivity. However, the company guided for a slower pace of sales in 2025 due to the impact of tariffs.
  
  
• Ryan Specialty Holdings (-13%) – Issued a healthy set of quarterly numbers, delivering double digit organic growth as insurance markets remain robust in the context of an elevated risk environment over the past several years (driven by increased climate, social, health and cybersecurity risks). However, as a major specialty insurance broker Ryan Specialty is seen as somewhat of a ‘safe haven’ stock, as companies and individuals are unlikely to cancel their insurance policies even in a recession. It benefitted during the sell-off Q1 and has fallen back in Q2. Year to date, in USD terms, the stock is flat/slightly up.

Stock example

To demonstrate the type of investments one might expect us to make, we include a stock example – Bentley Systems (NASDAQ: BSY), which we have owned since we took over the Fund in January 2025:

Bentley Systems is a family-run business, founded in 1984 by the Bentley brothers and listed on the NASDAQ in September 2020. It sells software on a largely recurring basis to the infrastructure industry – mostly public works and utility projects. The software portfolio supports the full lifecycle of an infrastructure project: planning and design, construction project management, and asset monitoring and maintenance. Bolt-on M&A is key to the strategy and has enabled Bentley to assemble the leading holistic infrastructure software portfolio – in fact most acquisitions are point solutions that are already integrated into the Bentley platform.

Software spend in infrastructure engineering is growing but remains much lower than other engineering verticals, and new products are driving greater efficiency e.g. digital twinning of infrastructure assets. From our analysis, we see a long runway for growth driven by software adoption in infrastructure, very strong intellectual property assets, an embedded solution advantage as the leading platform in the infrastructure industry, and strong alignment between management and equity owners as the family maintains a sizable shareholding.

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

* Source: FE Analytics, as at 30.06.25, total return, net of fees and income reinvested. The current fund managers’ inception date is 14.01.25.

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.