Liontrust UK Smaller Companies Fund

September 2019 review

The Liontrust UK Smaller Companies Fund returned -0.1%* in September. For comparison the FTSE Small Cap (excluding investment trusts) Index returned 2.9%.

 

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-China trade negotiations look set to enter another stage.

 

The main driver for the Fund and the smaller cap end of the market was individual stock news. Though it underperformed the FTSE Small Cap (ex IT) Index during September, the Fund’s return was more in line with the 0.3% return from the FTSE AIM All-Share, where the Fund has a 74% weighting.

 

Quixant (-37.3%) was the biggest disappointment. The company, which designs and manufactures technology platforms for the global slot machine and pay-to-play gaming industry, stated that 2019 revenue is expected to be below prior expectations due to lower 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.

 

Keywords Studios (-27.7%) slipped after it reported a squeeze in first half margins as the company scaled up operations, increasing both staff hires and training to meet demand for its Functional Testing and Game Development work streams. The company expects margins to recover in the second half of 2019 as benefits from this investment feed through. However, less positively, organic revenue growth is expected to slow in the second half of the year as clients’ focus shifts to new consoles expected in 2020.                                                                                                                     

 

There were notable gainers during the month. StatPro Group (+49.3%), 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.

 

Following a June profit warning in which it warned about slow sales growth, Craneware (+40.1%) rebounded after full year results met its reduced guidance. The US healthcare-focused software provider provided a bright outlook saying that renewal levels have remained strong and sales momentum has moved higher since the start of the new financial year.

 

Audio products specialist Focusrite (+21.7%) issued a brief statement commenting that revenue is expected to be ahead of expectations for the year to end August 2019. This growth included six weeks of revenue from ADAM Audio, the German studio monitor company which was acquired in July.  

 

Judges Scientific (+15.7%) also pleased the market by upgrading guidance. After delivering record interim results, the scientific instruments specialist said adjusted pre-tax profit and earnings per share are both expected to be ahead of expectations for the full year. The strong first half performance was derived from solid sales in North America, while China and Hong Kong returned to growth.

 

 

Positive contributors included:

StatPro Group (+49.3%), Craneware (+40.1%), Focusrite (+21.7%), Cohort (+20.5%) and Judges Scientific (+15.7%).

 

Negative contributors included:

Quixant (-37.3%), Keywords Studios (-27.7%), AB Dyamics (-20.0%), Arbuthnot Banking Group (-19.9%) and Next Fifteen Communications (-15.1%).

 

 

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

 

Sep-19

Sep-18

Sep-17

Sep-16

Sep-15

Liontrust UK Smaller Companies I Inc

-5.0

19.7

23.8

19.0

16.5

FTSE Small Cap ex ITs

-7.8

0.6

17.8

10.5

9.0

IA UK Smaller Companies

-7.1

10.8

25.0

7.8

11.7

Quartile

2

1

3

1

2

 

*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, 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, October 21, 2019, 1:51 PM