Liontrust UK Smaller Companies Fund

February 2019 review

The Liontrust UK Smaller Companies Fund returned -0.2%* in February, compared with the 0.5% return from the FTSE Small Cap (excluding investment trusts) Index.

 

Small cap stocks lagged the returns of the large cap FTSE 100 Index (+2.3%) in February. The idiosyncratic nature of the smaller end of the market once again came to the fore after a few months of largely sentiment driven moves.

 

For the Fund’s holdings, it was a mixed bag of company updates. One of the disappointments was Proactis Holdings (-59.9%), which having replaced its chief executive in January, issued a warning about growth in the second half of its financial year. The spend management company cited a lower level of retention and a deterioration in US and European businesses’ pipelines, which meant that it is unlikely that the group will deliver “significant growth” in the financial year ending 31 July 2019. As a result the new CEO, Tim Sykes, launched a review of the European and US divisions.

 

The company is relatively heavily geared thanks to the acquisition of Perfect Commerce which completed in August 2017 (adding the very divisions which are causing the business issues), and the update was doubly disappointing as a trading statement just last month had reported trading was fine. Combinations of trading issues, high gearing, and abrupt changes in messaging never go down well in the market, and the shares swiftly reacted as one would anticipate.

 

Accesso Technology Group (-41.0%) was another stock to suffer in February. The company’s “broadly” in line trading update was interpreted as a minor downgrade and sent shares lower. The queuing and ticketing technology company also indicated that it would be reviewing its investment spending priorities, but did not clarify any details over whether this would mean a simple reallocation of spend, or a material decrease/increase in spending. The market naturally speculated that if it was the latter, this could lead to earnings downgrades. Mixed in with this was the news that that executive chairman Tom Burnet, who has been the face of the company for many years, would be stepping down.

 

In the current market environment, the last thing that investors want is uncertainty – which is exactly what this announcement threw up. Hopefully some clarity released at the time of the full year results in the spring could allow the shares to bounce off these low levels.

 

The heavy share price falls from Proactis and Accesso were offset by a number of holdings registering gains. Kainos Group (+17.1%) was one such stock. The company issued a short statement indicating that full-year results for the year ending 31 March are anticipated to be ahead of current market expectations, driven by strong demand for its Digital Transformation and Workday Services divisions. Next Fifteen Communications (+20.6) continued to feel the benefit from its late January statement, in which it said full-year results are set to be in line with expectations, and organic growth was indicated to be above the sector average.

 

Marketing platform provider dotdigital Group (+14.7%) announced a three year extension to its Premier Technology Partner status with Magneto. The group’s interim results later in the month added to share price gains, with revenue in the six months to 31 December rising 33% year-on-year – driven by new direct customer wins – and adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) growing 25%. Following these results, management stated that they are confident of meeting full-year expectations.  


Positive contributors included:

Next Fifteen Communication (+20.6%), Kainos Group (+17.1%), dotdigital Group (+14.7%), Arbuthnot Banking Group (+13.8%) and FW Thorpe (+12.2%).

 

Negative contributors included:

Proactis Holdings (-59.9%), Accesso Technology (-41.0%), James Cropper (-17.0%), Animalcare Group (-15.4%) and Team17 Group (-12.4%).

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

 

 

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Liontrust UK Smaller Companies I Inc

-6.0

27.2

13.3

23.8

4.4

FTSE Small Cap ex Its

-13.8

15.6

12.5

13.0

-2.7

IA UK Smaller Companies

-11.7

27.2

8.1

14.9

-1.7

Quartile

1

3

1

1

1

 

*Source: Financial Express, as at 28.02.2019, 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 31.12.2018, total return (net of fees and income reinvested), bid-to-bid, primary class.


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, March 15, 2019, 10:43 AM