Liontrust UK Smaller Companies Fund

November 2018 review

The Liontrust UK Smaller Companies Fund returned -1.8%* in November, compared with the -1.9% return from the FTSE Small Cap (excluding investment trusts) Index.

 

The initial bounce back in stock markets following ‘Red October’ lost momentum half way through November as further uncertainty over Brexit and tumbling oil prices weighed on investor sentiment. This was evident across the whole market cap spectrum in the UK, with the FTSE 100 returning -1.6%, the FTSE 250 -2.1% and FTSE Small Cap (ex IT) -1.9%.

 

However, top-down investor sentiment didn’t quite dominate to the same extent as in October, with company newsflow playing more of a role. Bioquell (+33.7%) was one example of this as its share price shot higher on the agreement to be taken over by US-based Ecolab. The deal was struck at 590p per share, a 40% premium to the company’s share price at the time. Bioquell, a provider of bio-decontamination solutions to the pharmaceutical, life sciences and healthcare industries, had previously struggled to translate its intellectual property into sustained financial outperformance, until a new management team entered the fray a few years ago and substantially tightened up the business’ commercial and operational focus. Momentum has since returned to both the underlying business performance and the share price, which had already risen over 60% in 2018 prior to the takeover being announced, thanks to a series of analyst earnings upgrades.

 

Following completion of the deal, it will give a chance for the Economic Advantage team to promote one of their pipeline stocks at the other end of the investment lifecycle. This month, there were two new additions for the Fund: Bioventix and Nucleus Financial Group.

 

Bioventix is a biotechnology company which specialises in high-affinity sheep monoclonal antibodies for use in clinical diagnostics. The stock is already owned in the UK Micro Cap Fund and possesses Economic Advantage in the form of its intellectual property.

 

Nucleus Financial is a platform used by independent financial advisors (IFAs) to manage client assets in one place. The company enjoys a high level of recurring fee income and has a strong distribution network, working with over 800 adviser firms and used by over 2,000 advisers.

 

Customer engagement software provider Netcall’s (-36.5%) share price slid by a third over November. Although no newsflow was released during the month, the group’s full-year results published in October were accompanied by a decision to increase investment in sales and marketing, and product development. The strategy is intended to fully exploit the growth opportunity for the group’s low-code software development platform, MatsSoft, acquired in 2017, but has the impact of hitting profitability during the period of increased investment, making the shares look optically on a short term view.

 

AB Dynamics’ (+31.7%) full-year results were better received as it revealed a record year for revenue and profit. The automotive test systems company’s revenue increased by 51% year-on-year, adjusted profit before tax rose 45% and basic earnings-per-share was up 74%. Growth is expected to continue as demand for the company’s advanced test and measurement equipment remained high, particularly due to the drive towards autonomous vehicles, helping it maintain a healthy order book.

 

Audio products maker Focusrite (+22.9%) also released upbeat results with significant improvements in revenue and profit. The company experienced growth in all geographic regions and both of its main divisions – Focusrite and Novation. It added that trading in the early months of the current financial year had been broadly similar to the same period last year and the company is on track to deliver further growth.

 

Paper and technical fibre maker James Cropper (-17.8%) has been contending with higher pulp prices, resulting in additional costs of £3.5m which saw interim pre-tax profit fall 39% versus the prior year. Nevertheless the group maintained its interim dividend and expectations for its full-year results.

 

There was more positive news for PayPoint (+11.3%) which recorded a 4% increase in pretax profit in the six months to 30 September. The roll out of PayPoint One, its electronic point of sale system, expanded to 11,246 sites, keeping it on track to meet its target of 12,400 sites by 31 March 2019. Meanwhile, ECO Animal Health Group’s (+17.0%) share price jumped after it announced that its swine vaccine joint venture with US-based Pharmgate extended its scope to include Japan and Brazil.

 

Positive contributors included:

Bioquell (+33.7%), AB Dynamics (+31.7%), Focusrite (+22.9%), ECO Animal Health Group (+17.0%) and Clipper Logistics (+14.6%).

 

Negative contributors included:

Netcall (-36.5%), Accesso Technology Group (-25.6%), James Cropper (-17.8%), Sumo Group (-16.0%) and Learning Technologies Group (-14.3%).

 

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

 

 

Sep-18

Sep-17

Sep-16

Sep-15

Sep-14

Liontrust UK Smaller Companies I Inc

19.7

23.8

19.0

16.5

12.3

FTSE Small Cap ex ITs

0.6

17.8

10.5

9.0

5.6

IA UK Smaller Companies

10.8

25.0

7.8

11.7

7.6

Quartile

1

3

1

2

2

 

*Source: Financial Express, as at 30.11.2018, 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 30.09.2018, 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.

Wednesday, December 12, 2018, 5:11 PM