Liontrust UK Micro Cap Fund

September 2019 review

The Liontrust UK Micro Cap Fund returned 2.6%* in September. For comparison, the FTSE Small Cap (excluding investment trusts) Index returned 2.9%, the FTSE AIM All-Share Index returned 0.3% and the average return of funds in the IA UK Smaller Companies sector was 1.7%.

 

The macro factors which have dominated over the last few months remained prominent in September. Central Banks acted on their dovish rhetoric, with the European Central Bank joining the US Federal Reserve in cutting interest rates. The clouds of uncertainty surrounding Brexit showed no signs of being removed while the US and China agreed to commence trade negotiations.

 

The main drivers for the Fund and the micro cap end of the market was individual stock news. StatPro Group (+49.3%) and Synnovia (+41.1%) both saw substantial rises in their share prices after they received takeover offers. StatPro, which provides portfolio analysis and asset pricing services, agreed to an all cash offer from Confluence Technologies. The bid of 230p per share was pitched at a 55% premium to StatPro’s share price prior to the announcement.

 

Synnovia’s board recommended a 125p/share offer from BPF1, a subsidiary of Camelot Capital Partners. The deal, which values Synnovia at £48.8m, represents a premium of around 43%.

 

Quixant (-37.3%) was the biggest disappointment during September. The company, which designs and manufactures technology platforms for the global slot machine and pay-to-play gaming industry, stated that 2019 revenue is now expected to be below prior expectations due to lower expected demand for its customers’ gaming machines. This slowdown was particularly marked in the Australian market where Quixant’s major customers have lost market share to competitors. The company added that overall orders are not expected to return to the previous year’s levels for the rest of this year and at least the first half of 2020.

 

ULS Technology’s (-23.7%) shares dropped after it stated that it was unsuccessful in re-tendering an existing contract. It estimated this would hit pre-tax profit for the year ended March 2021 by £400,000-£500,000. The company maintained confidence in its strategy and said it continues to win new contracts.

 

Netcall’s (-18.6%) full year results showed a 37% decrease in adjusted earnings before interest, taxes, depreciation and amortisation for the 12 months to 30 June. This was in line with what was indicated in a May trading update in which the company warned product sales have been hit by NHS purchasing delays. However, the company managed to post a rise in both revenue and pre-tax profit for the year. It also noted a strong pipeline and growing recurring revenue base heading into its new financial year.

 

Uncertainty surrounding the NHS’s spending plans also weighed on Surgical Innovations (-7.3%). The minimally invasive surgery tools developer said growth in revenue and adjusted operating profits are to be lower than expected due to challenging market conditions in the UK and EU. The company believes that these challenges are temporary and are optimistic about its prospects beyond the current hiatus in NHS funding and activity levels.  

 

Sanderson Group exited the Fund following the completion of its takeover by Aptean Limited.

 

 

Positive contributors included:

StatPro Group (+49.3%), Synnovia (+41.1%), Cohort (+20.5%), Tekmar Group (+18.3%) and Judges Scientific (+15.7%).

 

Negative contributors included:

Quixant (-37.3%), ULS Technology (-23.7%), Netcall (-18.6%), Surgical Innovation Group (-7.3%) and Totally (-5.7%).

 

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

 

Sep-19

Sep-18

Sep-17

Liontrust UK Micro Cap I Acc

-2.5

24.0

22.5

FTSE AIM All Share

-19.4

10.8

24.4

FTSE Small Cap (ex IT)

-7.8

0.6

17.8

IA UK Smaller Companies

-7.1

10.8

25.0

Quartile

1

1

4

 

*Source: Financial Express, as at 30.09.2019, 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 30.09.2019, 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.

Monday, October 21, 2019, 1:46 PM