Liontrust UK Micro Cap Fund

December 2020 review

The Liontrust UK Micro Cap Fund returned 6.9%* in December. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 6.7% and 10.2% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 7.5%.

 

December was bookended by UK approvals for Covid-19 vaccines: first the Pfizer/BioNTech vaccine on the 2nd, followed by the Oxford/AstraZeneca version on the 30th.

 

Positive sentiment over the roll-out of vaccines in 2021 and a return to economic and societal normality allowed markets to add to November’s sharp gains, despite the emergence of a new strain of coronavirus which was spreading rapidly in the UK – leading to lockdown measures being tightened at Christmas rather than relaxed as planned.

 

The mood among UK investors may also have been boosted by the last-minute agreement of a trade deal between the UK and EU ahead of the transition period ending on 31 December. Whatever the merits (or otherwise) of the deal, the removal of some uncertainty will have been welcomed by most.

 

Within the Fund, D4t4 Solutions (+35%) was one of the largest risers after announcing two significant contract upgrades, from a large UK bank and major US financial services provider respectively. Both contracts relate to D4t4 Solution’s Celebrus customer data platform and are expected to add around £3.5m in revenues in the year to 31 March 2021. The company commented that these contracts give it greater confidence in delivering a strong finish to its financial year, although it stopped short of upgrading its guidance.

 

As a provider of data and analysis to pubs and vending machine operators via its connected ‘internet-of-things’ (IoT) platform, Vianet Group (-27%) has been having a much tougher time of it during the various levels of lockdown imposed during 2020. Interim results for the period to 30 September 2020 confirmed the heavy financial impact: revenues more than halved year-on-year to £4.1m while it slipped from an operating profit of £2m to a loss of £0.4m. While trading during the pandemic has been ahead of management’s own internal forecasts, this didn’t prevent the shares sliding through December.

 

A handful of the Fund’s holdings were involved in deal-making in December. Promotional products supplier Pebble Group (+22%) supplemented the fast growth of the software side of its business (Facilisgroup) through the US$5.3m acquisition of two products from CoreXpand, a US developer: software which facilitates online pop-up shops and software that provides customer-facing solutions for complex online inventory stores. Together, Pebble Group expects the acquisition to support its ambition of becoming the leading e-commerce player in the promotional products industry by strengthening its e-stores offering. The announcement of the deal was accompanied by a short trading update outlining that trading has remained in-line with expectations.

 

Semiconductor designer and manufacturer CML Microsystems (+29%) announced the sales of its Hyperstone storage division to Swissbit for US$49m. The disposal leaves CML Microsystems focused solely on the communications market. The company plans to use the disposal proceeds to finance growth in its ongoing businesses.

 

Shares in Nucleus Financial Group (+33%) jumped after the company confirmed it was in discussions with a number of parties that were considering takeover offers: IntegraFin (a UK Smaller Companies Fund holding), Epris/James Hay Partnership, Aquiline Capital Partners and Allfunds. Later in the month, both Aquiline Capital Partners and Allfunds ruled themselves out of the running to make a takeover offer, as did Integrafin in early January.

 

Away from corporate activity, shares in SimplyBiz Group (-7.6%) slipped back a touch during the month having risen strongly during the market’s November rally. This was despite the release of a trading update which re-affirmed 2020 earnings guidance and set some healthy targets for future years. SimplyBiz anticipates organic growth of between 5% and 7% per annum over the next two to three years, with an EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of between 35% and 40%.

 

Molecular diagnostics group Yourgene Health (-8.5%) also lost some ground after releasing interim results covering the six months to 30 September. Although revenues increased 5% year-on-year to £8.2m, EBITDA dropped from £0.4m to a £0.2m loss after the company increased admin expenses by 21% to £5.2m. Yourgene is investing in growth as it anticipates a new wave of diagnostic technologies in coming years; in August it raised £15m via a share placing to support these investments, which included the acquisition of Coastal Genomics. Yourgene’s core business was impacted by the pandemic but it has developed Covid-19 testing products which generated £0.5m over the six months and have already exceeded this level in the first two months of the second half.

 

Positive contributors included:

 

D4t4 Solutions (+35%), Nucleus Financial Group (+33%), CML Microsystems (+29%), Fonix Mobile (+28%), Accesso Technology Group (+27%).

 

Negative contributors included:

 

Vianet Group (-27%), Yourgene Health (-8.5%), SimplyBiz Group (-7.6%), Gateley Holdings (-7.3%) and James Cropper (-6.4%).

 

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

 

 

Dec-20

Dec-19

Dec-18

Dec-17

Liontrust UK Micro Cap I Acc

12.1

29.1

3.0

22.1

FTSE Small Cap ex ITs

1.7

17.7

-13.8

15.6

FTSE AIM All Share

21.7

13.3

-17.1

26.0

IA UK Smaller Companies

6.5

25.3

-11.7

27.2

Quartile

1

2

1

4

 

*Source: Financial Express, as at 31.12.20, 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 31.12.20, 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.

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.

Thursday, January 14, 2021, 5:41 PM