Liontrust UK Smaller Companies Fund

July 2018 review

The Liontrust UK Smaller Companies Fund returned 0.3%* in July, compared with the -1.0% return from the FTSE Small Cap (excluding investment trusts) Index.

 

Equity markets were still captivated by trade war news. Trump acted on his promise to place tariffs on China which, as expected, announced retaliatory measures. However, relations with Europe were less strained; Trump met with Jean Claude Juncker, president of the European Commission, and agreed to not impose any further trade barriers.

 

In the UK, weak economic data – notably inflation numbers – sent trade-weighted sterling to its lowest levels of 2018 so far. UK CPI (consumer price index) grew 2.4% year-on-year in June, the same rate that was recorded in May but below analyst expectations for 2.6% growth. A consequence of the weaker pound was that UK large cap stocks outperformed: the FTSE 100 Index returned 1.5% in July, compared to the FTSE 250’s return of 0.4% and the FTSE Small-Cap (ex-IT) Index’s -1.0%.

 

It was a busy month of corporate releases by Fund holdings, with some mixed results. dotDigital Group (+26.0%) was one of the positives after a trading update showed group revenue for its 2018 financial year grew around 35% year-on-year and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) are expected to be in line with market expectations. The marketing platform provider also stated that strong momentum has continued into the new financial year and that it has seen no material impact from the implementation of GDPR, which had been a concern for investors in the run up to the update’s release.

 

The biggest faller this month was IDE Group (-60.9%). The group issued a trading update signalling a 90% drop in adjusted EBITDA in the first half of the year, as one-off projects from last year did not reoccur at the same rate. Later in the month, the group announced a deeply discounted fundraising of £5.5m through an issue of equity, convertible loan notes and an open offer. The proceeds will be used to address the company’s short term cash pressures and working capital issues. 

 

Globaldata (+10.0%) and Clipper Logistics (-21.1%) both released interim results. Data and analytics company Globaldata stated recent acquisitions boosted scale and revenue in the six months to end June. It also announced a 40% increase in deferred revenue, increasing visibility for the rest of the year. Clipper Logistics’ interims looked solid on first glance. Revenue rose 18%, while operating profit increased 15% as it began contracts with a number of retailers including Marks & Spencer and ASOS. However, the company noted the wider economic climate is causing a headwind for its customers in the retail sector, bringing “an element of caution” to its growth plans.

 

There were also short trading updates from paper products group James Cropper (+16.2%) and teleradiology company Medica Group (+10.0%). James Cropper stated that sales for the first quarter of its 2019 financial year rose 7%, in line with management expectations. Medica noted that its performance in the first half of 2018 gave it confidence that it is on track to meet expectations for the full-year.

 

Away from trading updates and results, IMImobile (+25.0%) rose following an acquisition. The cloud communications software provider agreed to buy Canada-based Impact Mobile for an initial payment of £14.4m. The acquisition is expected to be immediately accretive to earnings and will improve the group’s presence in the US market.

 

The only change to the Fund was the sale of Empresaria Group, following a deterioration in the company’s cash flow return on capital profile, weak organic trading and high levels of debt in a cyclical business. These reasons eroded the managers’ conviction in the stock’s ability to be a long-term compounder of earnings for the process.

 

Positive contributors included:

dotDigital Group (+26.0%), IMImobile (+25.0%), James Cropper (+16.2%), Globaldata (+10.0%) and Medica Group (+10.0%).

 

Negative contributors included:

IDE Group (-60.9%), Proactis Holdings (-21.6%), Clipper Logistics (-21.1%), Smart Metering Systems (-19.3%) and First Derivatives (-12.9%).


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


 

Jun-18

Jun-17

Jun-16

Jun-15

Jun-14

Liontrust UK Smaller Companies I Inc

18.7

39.9

5.4

7.3

29.6

FTSE Small Cap ex ITs

6.4

28.4

-3.7

8.4

25.3

IA UK Smaller Companies

17.2

36.3

-6.1

9.8

22.3

Quartile

2

2

1

4

1

 

*Source: Financial Express, as at 31.07.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.


**Source: Financial Express, as at 30.06.2018, 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. 

Monday, August 20, 2018, 10:16 AM