Liontrust UK Micro Cap Fund

August 2020 review

The Liontrust UK Micro Cap Fund returned 4.1%* in August. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 4.2% and 9.0% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 5.5%.


ONS data statistically confirmed what was already common knowledge: the UK has suffered its largest recession on record. Q2’s 20% contraction added to the 2.2% decline in Q1 to meet the technical parameters of a recession, i.e. two or more consecutive quarters of negative growth. The Bank of England is now forecasting the economy to shrink by 9.5% in 2020, less than its prior forecast of a 14% contraction. Counteracting this forecast of a shallower fall is a prediction of a slower recovery in 2021 and 2022 – of 9% and 3.5% respectively rather than 15% and 3%. However, economic forecasting is notoriously tricky, let alone under such unique circumstances, and the Bank’s underlying assumptions of no second wave of coronavirus and a smooth transition to an EU trade agreement by the start of 2021 shows how hard it is to attach much value to such estimates.


After July’s dip, the UK stockmarket resumed its recovery from the coronavirus crisis sell-off. In the US, the recovery seems complete for the S&P 500 and Nasdaq Composite indices, with both touching new all-time highs during the month. 


Following its addition to the Fund last month, shares in Tristel (+18.8%) featured among the best performing holdings in August. During the month, it conducted a virtual shareholder open day and announced that its Duo high-level disinfectants have been approved for decontamination of semi-critical medical devices by India's regulator. Tristel is a manufacturer and developer of infection control and hygiene products, with a proprietary chemistry based on chlorine dioxide disinfection. In July, it released an interim trading update stating that results would be ahead of market expectations after sales of its hospital surface disinfection products rose during the coronavirus crisis.


At the other end of the scale is Pennant International Group (-18%), one of the Fund’s smallest positions, which has found itself in a very tough operating environment as a result of social and economic measures introduced to combat the pandemic. It again warned that these restrictions are having a negative impact on its business, impeding its ability to meet key customer personnel to deliver training programmes or to install training aids in certain locations. The company provides technology-based training solutions – such as operational simulators – for sectors such as defence or regulated industries. Pennant now expects revenue in the first half of 2020 to fall to £6.3m with an EBITA (earnings before interest, tax and amortisation) loss. While Pennant forecasts point to a recovery in the second half, such that it can target £14m revenue and an EBITA profit, it expects its operations to remain substantially constrained by Covid-19 restrictions.


A handful of changes were made to the Fund’s portfolio of holdings during August. The Fund sold out of Tekmar Group (-21.9%), the manufacturer of cable protection systems for offshore wind farms, following the August announcement of James Ritchie-Bland’s resignation as CEO. Ritchie-Bland owns 2% of the company and his departure will take the company’s senior management equity ownership below the 3% threshold the fund managers require of all small-cap and micro-cap companies. 


The Fund exited the position in Renalytix AI, a stock it had received shares in following a late-2018 spin-out from EKF Diagnostics. Shares in Renalytix AI have performed very well since the spin-out, pushing its market capitalisation above the £275m level at which the fund managers begin to consider exit options.


Pharmaceutical marketing consultant Cello Health also left the Fund upon the completion of a takeover by private equity group Arsenal Capital Partners. The deal – which was announced in July – valued Cello at £175m, with investors receiving 161p per share, a 40% premium to its share price prior to the announcement and also modestly above the February peak which represented the highest share price for a decade.


Two new investments were initiated in Tribal Group and Yourgene Health.


Tribal Group is a provider of software and services to the education sector, with customers spanning universities, further education and vocational institutions, schools, government and state bodies, training providers and employers. The fund managers believe Tribal has competitive advantage stemming from its strong intellectual property and global distribution network. Its transition to SaaS should also increase quality of earnings.


Yourgene Health is an international molecular diagnostics group which possesses substantial intellectual property around the development and commercialisation of genetic products and tests. It works in partnership with global leaders in DNA technology to advance diagnostic science. Yourgene Health’s main commercialised product is non-invasive prenatal tests (NIPT) for Down’s syndrome and other genetic disorders. The Fund initiated a holding by participating in Yourgene’s placing to raise funds for the acquisition of Costal Genomics in August. Costal Genomics adds further intellectual property around workflow systems for NIPT and other Next Generation Sequencing (NGS) testing, boosting Yourgene’s already impressive growth profile.


Positive contributors included:

Oxford Metrics (+24%), Cerillion (+20%), Tristel (+19%), IMImobile (+18%) and Mind Gym (+14%).


Negative contributors included:

Tekmar Group (-22%), Keystone Law Group (-12%), Orchard Funding Group (-12%), Augean (-8.1%) and MJ Hudson (-7.4%).


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







Liontrust UK Micro Cap I Acc





FTSE Small Cap ex ITs





FTSE AIM All Share





IA UK Smaller Companies











*Source: Financial Express, as at 31.08.20, 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 30.06.20, total return (net of fees and income reinvested), bid-to-bid, institutional class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.


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.


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.

Thursday, September 17, 2020, 3:18 PM