Liontrust UK Micro Cap Fund

April 2019 review

The Liontrust UK Micro Cap Fund returned 5.4%* in April. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned 4.5%, the FTSE AIM All-Share Index returned 5.9% and the average return of funds in the IA UK Smaller Companies sector was 5.9%.

 

The AIM market and the lower capitalisation end of the UK Main Market drifted higher in April as investors continued to interpret the 2019 investment backdrop as benign for risk assets. Globally, the apparent easing in US-China trade tensions and the shift to a more dovish approach from the US central bank remained to the fore. In the UK, a ‘risk on’ trade also received encouragement from another postponement of the Brexit deadline, from 12 April to 31 October.

 

The Fund’s portfolio of stocks benefitted from this environment, with a number of holdings notching up share price gains without providing any updates to investors. Among those that did report, AB Dynamics (+41.1%) was a highlight. It recorded a 69% increase in revenues to £25.8m and near doubling of profit before tax to £6.4m in the six months to 28 February 2019. The company supplies advanced testing systems to the global motor industry. These systems, which include driving robots and guided soft targets, involve a substantial amount of intellectual property. We expect AB Dynamics to benefit from the growth of autonomous vehicle technology and Advanced Driver Assistance Systems. Within its interim results, the company commented on the size of its order book, noting that it provides “full visibility” for the remainder of this financial year (ending 31 October) and next.

 

A trading statement from Solid State (+29.4%) guided towards profits for the year to 31 March 2019 which will be “slightly ahead” of consensus forecasts, which themselves had already enjoyed upgrades in recent months. Revenue is expected to be around £56m, up by around 10% on an organic basis, and operating margins have continued to improve. In further positive news, Solid State commented that better than expected cash generation has allowed it to make an early repayment of £2.0m on the highest interest element of the loan used to finance its acquisition of Pacer last year.

 

K3 Capital Group (-20.3%) issued a less upbeat trading update. The private company mergers and acquisitions specialist told investors that some transactions under negotiation are taking longer to complete than anticipated. The company blames this on an “increasingly difficult backdrop of [the] UK’s economic and political environment in the run up to Brexit”. The deals may not close before then end of the company’s financial year on 31 May 2019, and it therefore now expects to report EBITDA (earnings before interest, tax, depreciation and amortisation) of between £4.5m and £5.0m. This is below the £7m consensus prior to the announcement.

 

Interim results from Oleeo (-15.8%) showed a decline in operating profits in the half year to 31 January 2019 due to substantial investment in increased headcount. The company noted that this won’t be a short-term phenomenon: it expects to ramp up investment further in the second half of the year. At the same time, it noted that sales growth could be constrained by economic uncertainty, a competitive market place, and some clients reducing their subscriptions. Taken together, these factors present what Oleeo describes as a “highly challenging and uncertain outlook”. 

 

Positive contributors included:

AB Dynamics (+41.1%), Solid State (+29.4%), Netcall (+20.6%), Sopheon (+18.1%) and Judges Scientific (+17.1%).

 

Negative contributors included:

K3 Capital Group (-20.3%), Oleeo (-15.8%), Jaywing (-13.3%), Diaceutics (-11.6%) and Quixant (-10.7%).

 

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

 

 

Mar-19

Mar-18

Mar-17

Liontrust UK Micro Cap I Acc

5.7

18.4

22.1

FTSE Small Cap ex ITs

-3.1

2.2

19.7

IA UK Smaller Companies

-2.6

14.9

18.7

Quartile

1

2

2

 

*Source: Financial Express, as at 30.04.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.

 

**Source: Financial Express, as at 31.03.2019, total return (net of fees and income reinvested), bid-to-bid, institutional class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

 

Key Risks

 

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. 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. The performance of the  GF UK Growth Fund may differ from the performance of the  UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

 

Disclaimer

 

The information and opinions provided 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.  Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Friday, May 17, 2019, 12:50 PM