Liontrust UK Micro Cap Fund

June 2019 review

The Liontrust UK Micro Cap Fund returned 0.5%* in June. For reference, the FTSE Small Cap (excluding investment trusts) Index returned -2.3%, the FTSE AIM All-Share Index returned -4.1% and the average return of funds in the IA UK Smaller Companies sector was -1.1%.

 

Expectations of further central bank easing propped up global stock markets but for UK small and micro cap companies, political developments weighed on returns. Investors determined that a Boris Johnson-led government would increase the chances of a ‘no deal’ Brexit as he emerged as the leading candidate to become the next Prime Minister. The pound dropped to its lowest level against the dollar in 2019, not helped by poor data which showed the UK economy shrank by 0.4% in April.

 

The result of the decline in sterling meant that UK large cap stocks, which are predominantly internationally exposed companies, performed better than mid and particularly small cap stocks. The FTSE 100 returned 4.0% in June, while the FTSE 250 rose 2.9% and the FTSE Small Cap (ex-IT) declined 2.3%.

 

Though some of the Fund’s holdings succumbed to this overall weakness in small caps, there were a number of notable bright spots which helped it post a modest gain during the month.

 

K3 Capital Group (+41.7%) was one such bright spot due to a short statement saying that adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) is expected to be at the upper end of market forecasts for the year to 31 May 2019. Although no doubt positive this must be taken in context, the upper end of these new expectations was still lower than their original forecast for the year and the shares have therefore been quite volatile recently. On the positive side, the brokerage added that a strong pipeline leaves it confident about prospects for the current financial year.

 

Sumo Group (+22.2%) meanwhile issued an AGM statement indicating that trading so far this year has been in line with market expectations as it highlighted the strong growth in the video gaming market. It reaffirmed its confident outlook for the current year and beyond.  

 

This was not the case for Surgical Innovations Group (-42.7%), which issued a profit warning for 2019 results. The minimally invasive surgery tools developer said the strong momentum from the previous two calendar quarters did not continue in the second quarter of 2019, as disruptions from Brexit saw lower orders in the UK and the EU. The company added that the costs of introducing new products to the market has increased due to a challenging regulatory environment. As a result, the company said full year revenue growth will be more modest than previously anticipated, while adjusted pre-tax profit will be lower compared to 2018. 

 

Billing and customer relationship software company Cerillion (+17.9%) saw its shares rise after announcing two new contract wins. The first was with Danish telecom and utility company SE Group – worth £5.1m for the supply of Cerillion’s business support and operations support systems. The second was a £4.8m deal with LINK Mobility, a Norwegian SMS and message delivery company for the same product.

 

Tatton Asset Management (+15.5%) saw adjusted operating profit and revenue rise by double digit percentages in the 12 months to end March, despite a “complex and challenging market environment”. Assets under management climbed 25% to £6.1bn and will be further boosted by significant mandate wins from Frenkel Topping and especially Tenet, one of the UKs largest financial advisory groups and therefore ideal candidates for Tatton’s low-cost fund offering.

 

Medica Group’s (-17.0%) share price gave back some ground after reporting strong 2018 results in March. The teleradiology specialist added in May that trading has started well in 2019, leaving it is on course to meet full-year expectations. However, news that the NHS is looking more seriously at using Artificial Intelligence caused some to worry over the existential threat that might pose to their business.

 

Financial adviser Lighthouse Group exited the Fund following the completion of its takeover by Quilter. A new position was opened in Totally plc, a company which provides ‘out-of-hospital’ healthcare services such as NHS 111. The company has recently been bolstered by the acquisition of Greenbrook Healthcare, one of the largest private operators of Urgent Treatment Centres in London. These UTCs, staffed by GPs and nurses, take pressure off NHS A&E departments by handling non urgent cases, leaving NHS staff to deal with those most in need. This should lead to greater efficiency and reduced waiting times. The hope is by bolting Greenbrooks know-how onto Totally’s network across the UK, the group can expand the offering nationally. The company enjoys recurring incomes over 70% of turnover thanks to the long-term contracts it signs with the NHS.

 

Positive contributors included:

Renalytix AI (+48.5%), K3 Capital Group (+41.7%), Sumo Group (+22.2%), Cerillion (+17.9%) and Tatton Asset Management (+15.5%).

 

Negative contributors included:

Surgical Innovations Group (-42.7%), Beeks Financial Cloud Group (-23.3%), Medica Group (-17.0%), Cello Health (-15.7%) and Pennant International Group (-15.4%).

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

 

 

Jun-19

Jun-18

Jun-17

Liontrust UK Micro Cap I Acc

3.1

21.4

33.7

FTSE Small Cap ex ITs

-8.6

6.4

28.4

IA UK Smaller Companies

-6.1

17.2

36.3

Quartile

1

1

3

 

*Source: Financial Express, as at 30.06.2019, 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 03.07.2019, 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.

Wednesday, July 24, 2019, 5:06 PM