Liontrust UK Smaller Companies Fund

June 2019 review

The Liontrust UK Smaller Companies Fund returned -0.6%* in June, compared with the -2.3% return from the FTSE Small Cap (excluding investment trusts) Index.

 

Expectations of further central bank easing propped up global stock markets, but for UK small 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 gross domestic product 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 relative performance.

 

Video gaming companies Sumo Group (+22.2%) and Team17 Group (+17.9%) were both among the portfolio’s strongest gainers. Starting with the latter, Team17 said that revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) for the year are expected to be ahead of current market forecasts. Strong sales momentum for both new and established games as well as additional licensing income has marked a buoyant first half for the group.

 

Sumo Group 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.  

 

Craneware (-37.8%) had been a contributor to the portfolio until a late June trading statement highlighting sluggish sales growth in the second half of the year. The US healthcare-focused software provider stated new product launches on its Trisus platform have seen a slower than anticipated uptake by clients in the second half of the company’s financial year and as a result full-year revenue growth is expected to be around 6%. This is a marked slowdown from the 16% recorded in the previous financial year.

 

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.

 

Two new positions were opened in the Fund: Gresham House and IG Design. Gresham House, a specialist alternative asset management business, is already a holding in the Liontrust Micro Cap Fund. The company possesses Economic Advantage in the form of recurring revenues, with fees on assets under management tied into its long-term investment structures.

 

IG Design is one of the world’s largest suppliers of gifting materials such wrapping paper and crackers. Its substantial market share in supplying for example Walmart, the world’s largest retailer, gives it a strong competitive advantage in design, logistics & materials sourcing. Supplying over 55,000 STock Keeping Units across the globe also means the company is adept and handling the complexity demanded by their customer base. Revenue visibility is high thanks to seasonal demand patterns, and it has continued to grow by focusing on supplying those who are taking market share. The company also enjoys substantial management ownership.

 

Positive contributors included:

Sumo Group (+22.2%), Team17 Group (+17.9%), Globaldata (+16.0%), Tatton Asset Management (+15.5%) and Ideagen (+13.9%)

 

Negative contributors included:

Craneware (-37.8%), Medica Group (-17.0%), Cello Health (-15.7%), Quixant (-10.8%) and SimplyBiz Group (-10.4%).

 

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

 

 

Jun-19

Jun-18

Jun-17

Jun-16

Jun-15

Liontrust UK Smaller Companies I Inc

2.3

18.7

39.9

5.4

7.3

FTSE Small Cap ex ITs

-8.6

6.4

28.4

-3.7

8.4

IA UK Smaller Companies

-6.1

17.2

36.3

-6.1

9.8

Quartile

1

2

2

1

4

 

*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, 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.

Wednesday, July 24, 2019, 5:02 PM