Liontrust UK Smaller Companies Fund

• Encouraging return of momentum to UK small caps, which have led the recovery from the market’s April lows.
• LSL Property Services and Tatton Asset Management among the best performing holdings.
• Eagle Eye Solutions a detractor following contract loss.

The Liontrust UK Smaller Companies Fund returned 2.3%* in June. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark was 4.8%, and the average fund in the IA UK Smaller Companies sector, also a comparator benchmark, returned 3.5%

Despite ongoing US trade policy uncertainty and a spike in geopolitical tensions as Israel launched attacks on Iran, investment markets showed little signs of risk-off or flight-to-safety behaviour, even after the US became directly involved by targeted Iranian nuclear facilities.

Global equity markets largely registered modest gains, taking several to fresh all-time highs, while a spike in oil and gold prices were short-lived. It was pleasing to see UK small-cap stocks, AIM in particular, continue the strong run of short-term performance; since Liberation Day AIM has been one of the best performing markets globally.

Within the Fund, one of the best performing holdings was LSL Property Services (+17%). It rose through June on the back of an in-line AGM statement released at the end of May. The provider of services to mortgage intermediaries and estate agent franchisees expects profit growth in 2025 to be in line with market consensus as it targets expansion in its three divisions: surveying & valuation, financial services and estate agency franchising.

Foresight Group (+16%) updated on good performance in the year to 31 March, a period in which it grew assets under management 9% to £13.2 billion. Foresight is an investment manager specialising in alternative assets such as infrastructure and private equity.

Sector peer Tatton Asset Management (+11%) also saw growth in assets under management, up 26% to £20.9 billion in the year to 31 March, with the majority of the rise driven by net inflows. The company also provides IFA support services and grew its network of firms by 14% to 1,110. In the first 10 weeks of its new financial year, Tatton has seen a run rate of £265 million net inflows a month, ahead of its anticipated rate for this financial year of £200 million to £250 million a month. Tatton continues to target £30 billion in assets under management by March 2029.

The largest detractor from performance was Eagle Eye Solutions (-43%), 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.

GlobalData (-18%) was briefly the subject of bid interest after announcing two conditional private equity approaches in April, but by June discussions with both parties had been terminated without agreement on terms being reached. The company’s statement was positive on the continued confidence on future prospects, to continue with their stated three-year growth plan.

RWS was sold from the Fund in June. RWS has been a long-standing holding and for much of this time was a strong organic growth compounder, with particular intellectual property strengths in patent and complex technical translations for industries such as life sciences, a global footprint (enabling it to serve large enterprise clients) and long-term, embedded customer relationships.

However, in more recent years it has suffered not only from the extreme valuation compression associated with AIM-listed small cap businesses and from short term cyclical demand pressures on end customer budgets, but critically also from significant longer-term structural questions over its relevance (and importantly its business model and pricing power) in a world where translation is increasingly AI-enabled, if not AI-executed. Our prevailing team view had been that the extreme low valuation (>25% free cash flow yield for much of the past few years) already reflected a substantial amount of this longer-term uncertainty, and that such structural concerns would take years to play out and were over-done in the short term.

However, a trading update in April catalysed a re-appraisal of the pace at which the company’s competitive advantage might be under threat. References to “specific challenges with two large clients in relation to changes to delivery models and content types”, with associated gross margin impact, led to a substantial profit downgrade for the year, and strengthened the case against continuing to hold on to the shares. In addition, the team had conducted several due diligence meetings with an expert network provider and an industry contact which reinforced our concerns. We therefore completed a full exit in June.

Positive contributors included:

LSL Property Services (+17%), Foresight Group (+16%), On the Beach (+13%), Tatton Asset Management (+11%) and Tristel (+11%).

Negative contributors included:

Eagle Eye Solutions (-43%), GlobalData (-18%), Robert Walters (-12%), DotDigital (-9.2%) and Brickability (-9.1%).

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, 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.