Liontrust UK Micro Cap Fund

• Encouraging return of momentum to UK small and micro caps, which have led the recovery from the market’s April lows.
• Gear4Music the top quarterly contributor after reporting improving market conditions in online musical equipment market.
• Accesso added to the portfolio as market volatility brings its market capitalisation within the Fund’s investment range.

The Liontrust UK Micro Cap Fund returned 16.4%* in Q2. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 15.1% and 13.8% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 13.1%.

UK equity markets endured a sharp sell-off in April after sweeping tariffs announced by US President Donald Trump – dubbed "Liberation Day" – sent shockwaves through global markets. However, sentiment gradually improved following a shift in the US administration's approach, including a 90-day delay on tariffs for non-retaliatory countries and the agreement for deals with trade partners including China.

This softening in tone provided reassurance to investors and supported a 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. Since Liberation Day, AIM has been one of the best performing markets globally.

In this more risk-on environment, the Fund benefited from a strong rebound in many of its AIM-listed holdings, with a number of these positions reporting double-digit share price gains.

We have consistently sought to emphasise that despite the brutal underperformance of small and micro caps relative to their large cap peers since the end of 2021, the Fund remains resolute in its conviction that such companies retain their highly attractive growth compounding potential over the longer term.

The Fund’s strongest riser was Gear4Music Holdings (+79%), after it commented signs of improving market conditions. The online retailer of musical instruments and equipment has faced a very challenging consumer demand backdrop since 2022, but its latest results showed a return to growth and strengthening trading momentum. In the six months to 31 March revenues rose 4%, taking full year growth to 2% (to £147 million). Since mid-March, this growth has accelerated to a double-digit level with sales momentum and gross margins on an upward trajectory. As well as some self-help measures including a strategic review, Gear4Music has also benefitted from a more benign competitive landscape following the recent failure of two UK peers. As a result of the pickup in trading, Gear4Music commented that it expects to exceed market expectations for the financial year to 31 March 2026.

ActiveOps (+59%) reported strong financial performance for the fiscal year ending 31^st March, with a 13% increase in revenue and robust cash generation. The company achieved significant growth in new customer acquisitions, particularly in the US, Canada, Australia, and Africa, and launched new iterations of its Decision Intelligence software, which have been well-received by the market. 

Looking forward, while ActiveOps remains aware of current global economic challenges, it is optimistic due to the number of new customers currently being onboarded, the wide range of expansion opportunities within its existing client base, and the robustness of its sales pipeline.

Animalcare (+35%) also rose strongly after releasing 2024 financial results il. The company reported on a strategically transformational year during which it disposed of its majority shareholding in UK-based pet microchipping company Identicare and reinvested the proceeds in Australia-based Randlab (a deal which completed just after year end). In an investor presentation in May, management made upbeat comments on current trading and prospects, noting that Randlab’s integration is progressing smoothly.

While these moves so far represent but a fractional reversal of the extreme de-rating across the smaller company segment of the portfolio over the past few years, it is nevertheless cheering to see significant signs of life emerging.

The largest detractor from performance was Eagle Eye Solutions (-46%), which lost a high-margin US contract, leading it to downgrade guidance for the financial year to 30 June 2026. Whilst the loss was disappointing it was an isolated incident and does not diminish the significant opportunity to scale with the recently announced global OEM partnership.

A new position was initiated in accesso Technology Group, a leading provider of technology to the global leisure industry for customers like Disney and Merlin Entertainments. As a consequence of the recent market volatility, the market capitalisation dipped below the Fund’s require threshold of £175 million presenting an attractive entry point for the Fund.

The position in online holiday specialist On The Beach was sold after it grew to exceed the £275 million market cap level at which the Fund begins a managed exit from positions. Following a fund manager reassessment of its risk profile, IG Design was also sold.

Positive contributors included:

Negative contributors included:

Eagle Eye Solutions (-46%), Bigblu Broadband (-34%), Mind Gym (-19%), Facilities by ADF (-15%) and Microlise (-5.2%). 

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

*Source: Financial Express, as at 30.06.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.06.25, total return (net of fees and income reinvested), bid-to-bid, institutional 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.